Exercise 7-16 (Algorithmic)

Cost control evaluation

HardHead makes precast concrete steps for use with manufactured housing. The company had the following 2013 budget based on expected production of 6,200 units:

Standard Cost	Amount Budgeted
Direct material	$22.50	$139,500
Direct labor	11.40	70,680
Variable overhead
Indirect material	3.75	23,250
Indirect labor	1.75	10,850
Utilities	1.00	6,200
Fixed overhead
Supervisory salaries	78,740
Depreciation	30,070
Insurance	19,530
Total	$378,820

Cost per unit = $378,820 6,200 = $61.10

Actual production for 2013 was 6,900 units, and actual costs for the year were as follows:

Direct material used	$161,391
Direct labor	79,143
Variable overhead
Indirect material	24,564
Indirect labor	13,041
Utilities	7,590
Fixed overhead
Supervisory salaries	80,603
Depreciation	30,070
Insurance	18,012
Total	$414,414

Cost per unit = $414,414 6,900 = $60.06

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 $7,176 [($61.10 - $60.06) X 6,900]. 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 $7,176 cost savings.

a. Is the actual-to-budget comparison proposed by Palate appropriate? - Select your answer -AppropriateInappropriateCorrect 1 of Item 1

Hide

If his comparison is not appropriate, prepare a more appropriate comparison. In the Variance column, enter a "U" for an unfavorable variance or an "F" for a favorable variance and if no variance use "NA". If an amount is zero, enter "0".

HardHead Concrete
	Actual	Budget	Variance
	$	$	$
(blank)
Variable OH
(blank)
(blank)
(blank)
Fixed OH
(blank)
(blank)
(blank)
Totals	$	$	$