Flexible Budget Performance Reporting Cranberry Industries uses flexible budget techniques in order to effectively control costs. The
Question:
Flexible Budget Performance Reporting
Cranberry Industries uses flexible budget techniques in order to effectively control costs. The data produced for the March quarter before analysis indicates the following:
Cost of Production Items | Budget $ | Actual $ |
Raw materials | 45000 | 47850 |
Direct labour | 54000 | 57375 |
Variable factory overhead | 27000 | 28500 |
Fixed factory overhead | 31500 | 31250 |
Total | 157500 | 164975 |
The original budget for the March quarter was planned at a level of 90,000 units of production. The actual level of production for the quarter was 97,500 units.
Raw materials, direct labor and variable manufacturing expenses are proportional to the units produced.
Required
a) a flexible budget and performance report for the March quarter. Calculate the capacity variance, the flexible budget variance, and the total (static) variance. Also calculate the percentage variances between the Flexible Budget and the Actuals to two decimal places.
b) Evaluate the production manager's performance for the March quarter. Your evaluation must refer to and comment on the following organizational policies and procedure:- an unfavorable variance between the flexible budget and the actuals of up to 2% is tolerated without question
- managers receive a bonus for favorable variances between the flexible budget and the actuals in total cost of production greater than 1.5%.
Horngrens Financial and Managerial Accounting
ISBN: 978-0133866292
5th edition
Authors: Tracie L. Nobles, Brenda L. Mattison, Ella Mae Matsumura