# Question: HardHead makes precast concrete steps for use with manufactured housing

HardHead makes precast concrete steps for use with manufactured housing. The company had the following 2013 budget based on expected production of 6,400 units:
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Actual production for 2013 was 7,000 units, and actual costs for the year were as follows:
Direct material used ......... \$ 161,000
Direct labor ............. 84,600
Indirect material ........... 28,000
Indirect labor ............ 13,300
Utilities ............. 7,700
Supervisory salaries ........ 82,000
Depreciation ........... 30,000
Insurance ............. 17,600
Total ............... \$ 424,200
Cost per unit = \$ 424,200 + 7,000 = \$ 60.60
The plant manager, Tanzi Palate, whose annual bonus includes (among other factors) 20 percent of the net favorable cost variances, states that he saved the company \$ 3,850 [(\$61.15 – \$ 60.60) x 7,000]. He has instructed the plant cost accountant to prepare a detailed report to be sent to corporate headquarters comparing each component’s actual per-unit cost with the per- unit amounts in the preceding annual budget to prove the \$ 3,850 cost savings.
a. Is the actual-to-budget comparison proposed by Palate appropriate? If his comparison is not appropriate, prepare a more appropriate comparison.
b. How would you, as the plant cost accountant, react if Palate insisted on his comparison? Suggest what alternatives are available toyou.
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