At the end of 2011, Cyril Fedako, CFO for Fedako Products, received a report comparing budgeted and actual production costs for the company’s plant in Forest Lake, Minnesota:

His first thought was that costs must be out of control since actual costs exceed the budget by $585,000. However, he quickly recalled that the budget was set assuming a production level of 60,000 units. The Forest Lake plant actually produced 65,000 units in 2011.

Required
a. Given that production was greater than planned, should Cyril expect that all actual costs will be greater than budgeted? Which costs would you expect to increase, and which costs would you expect to remain relatively constant?
b. Cyril is extremely busy—the company has six other plants. Therefore, he cannot spend time investigating every departure from the budget. With this in mind, which cost(s) should Cyril concentrate on in his investigation of budgetdifferences?

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Manufacturing Costs Forest Lake Plant Budget versus Actual 2011 Difference Budget Actual (Actual Minus Budget) Materials Direct labor Supervisory salaries Utilities Machine maintenance Depreciation of building Depreciation of equipment Janitorial $3,200,000 2,300,000 475,000 125,000 350,000 90,000 250,000 220,000 $7,010,000 $3,500,000 2,500,000 500,000 135,000 380,000 $300,000 200,000 25,000 10,000 30,000 90,000 255,000 235,000 $7,595,000 5,000 15,000 $585,000 Total