Adrian Power manufactures small power supplies for car stereos. The company uses flexible budgeting techniques to deal with the seasonal and cyclical nature of the business. The accounting department provided the accompanying data on budgeted manufacturing costs for the month of January:
ADRIAN POWER
Planned Level of Production for January
| Budgeted production (in units) | 14,000 |
| Variable costs (vary with production) | |
| Direct materials | $140,000 |
| Direct labor | 224,000 |
| Indirect labor | 21,000 |
| Indirect materials | 10,500 |
| Maintenance | 6,300 |
| Fixed costs | |
| Supervision | 24,700 |
| Other (depreciation, taxes, etc.) | 83,500 |
| Total plant costs | $510,000 |
| Actual Operations for January are summarized as Actual Operations for January | |
| Actual production (in units) | 15,400 |
| Actual costs incurred | |
| Direct materials | $142,400 |
| Direct labor | 259,800 |
| Indirect labor | 27,900 |
| Indirect materials | 12,200 |
| Maintenance | 9,800 |
| Supervision | 28,000 |
| Other costs (depreciation, taxes, etc.) | 83,500 |
| Total plant costs | $563,600 |
Required:
a. Prepare a report comparing the actual operating results with the flexible budget at actual production.
b. Write a short memo analyzing the report prepared in (a). What likely managerial implications do you draw from this report? What are the numbers telling you?
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