Question

Frank Weston, supervisor of the Freemont Corporation’s Machining Department, was visibly upset after being reprimanded for his department’s poor performance over the prior month. The department’s cost control report is given below:

Freemont Corporation–Machining Department Cost Control Report For the Month Ended June 30
	Actual Results			Planning Budget			Variances
Machine-hours		42,000			40,000
Direct labor wages	$	83,100		$	80,800		$	2,300	U
Supplies		25,800			23,600			2,200	U
Maintenance		24,600			21,700			2,900	U
Utilities		22,300			20,500			1,800	U
Supervision		50,000			50,000			0
Depreciation		85,000			85,000			0
Total	$	290,800		$	281,600		$	9,200	U

“I just can’t understand all of these unfavorable variances,” Weston complained to the supervisor of another department. “When the boss called me in, I thought he was going to give me a pat on the back because I know for a fact that my department worked more efficiently last month than it has ever worked before. Instead, he tore me apart. I thought for a minute that it might be over the supplies that were stolen out of our warehouse last month. But they only amounted to a couple of hundred dollars, and just look at this report. Everything is unfavorable.”

Direct labor wages and supplies are variable costs; supervision and depreciation are fixed costs; and maintenance and utilities are mixed costs. The fixed component of the budgeted maintenance cost is $15,700; the fixed component of the budgeted utilities cost is $13,700.

Required:

2. Complete the performance report that will help Mr. Weston’s superiors assess how well costs were controlled in the machining department. (Round your intermediate calculations to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Freemont Corporation Machining Department Flexible Budget Performance Report For the Month Ended June 30 Actual Flexible Results Budget 42,000 Planning Budget 40,000 Machine-hours 80,800 23,600 21,700 Direct labor wages Supplies Maintenance Utilities Supervision Depreciation Total $ 83,100 25,800 24,600 22,300 50,000 85,000 $ 290,800 20,500 50,000 85,000 $ 281,600

Answer 1

Freemont Corporation-Machining Department
Flexible Budget Performance Report
For the Month Ended June 30
	Actual results	Variance		Flexible budget	Variance		Planning Budget
Machine Hours	42,000	0	None	42,000	2000	U	40,000
Direct Labor Charges	$83,100	1,740	F	$84,840	4,040	U	$80,800
Supplies	25,800	1,020	U	24,780	1,180	U	23,600
Maintenance	24,600	2,600	U	22,000	300	U	21,700
Utilities	22,300	1,460	U	20,840	1,460	U	20,500
Supervision	50,000	0	None	50,000	0	None	50,000
Depreciation	85,000	0	None	85,000	0	None	85,000
Total	$290,800	3,340	U	$287,460	6,980	U	$281,600

Working Note

Flexible Budget

(Planningbudgetamount/Budgeted Machine Hour)* Actual Machine Hour

1. Direct Labor Charges = ($80,800/40,000)*42,000 = $ 84,840

2. Supplies   = (23,600/40,000)*42000 = 22,000

3. Maintenance

   Fixed component of budgeted Maintenance Cost = $15,700

   So, Variable Component of budgeted maintenance cost = $21,700-$15,700= $6,000

   Hence revised Variable component = ($6,000/40,000)*42,000=$6,300

   Total budgeted Maintenance cost under flexible budget = $15,700+$6,300= $22,000

4. Utilities

    Fixed component of budgeted Utilities Cost = $13,700

   So, Variable Component of budgeted Utilities cost = $20,500-$13,700= $6,800

   Hence revised Variable component = ($6,800/40,000)*42,000=$7,140

   Total budgeted Utilities cost under flexible budget = $13,700+$7,140= $20,840