Performance Report Based on Actual Production

Ladan Suriman, controller for Healthy Pet Company, has been instructed to develop a flexible budget for overhead costs. The company produces two types of dog food. BasicDiet is a standard mixture for healthy dogs. SpecialDiet is a reduced protein formulation for older dogs with health problems. The two dog foods use common raw materials in different proportions. The company expects to produce $80,000$ bags of each product during the coming year. BasicDiet requires $0\mathrm{.}20$ direct labor hour per bag, and SpecialDiet requires $0\mathrm{.}30$ direct labor hour per bag. Ladan has developed the following fixed and variable costs for each of the four overhead items:

Overhead Item Fixed Cost Variable Rate per Direct

Labor Hour

Maintenance $ $57,250$ $$0\mathrm{.}50$

Power $0\mathrm{.}40$

Indirect labor $43,5002\mathrm{.}10$

Rent $39,000$

Assume that Healthy Pet actually produced $100,000$ bags of BasicDiet and $90,000$ bags of SpecialDiet. The actual overhead costs incurred were as follows:

Maintenance $$81,300$

Power $18,700$

Indirect labor $$143,600$

Rent $39,000$

Required:

$1.$ Calculate the number of direct labor hours budgeted for actual production of the two products.

fill in the blank $1$ hours

$2.$ Prepare a performance report for the period based on actual production. If an amount box does not require an entry, enter $"0".$ Enter a favorable variance as a negative amount, and an unfavorable variance as a positive amount. If an amount is zero, enter $"0"$ and choose "Not applicable" from the dropdown list.

Healthy Pet Company

Performance Report $-$ Overhead

For the Current Year

Actual Budgeted Variance

Units produced fill in the blank $2$ fill in the blank $3$ fill in the blank $4$

Production unit:

Maintenance $fill in the blank $6$ $fill in the blank $7$ $fill in the blank $8$

Power fill in the blank $10$ fill in the blank $11$ fill in the blank $12$

Indirect labor fill in the blank $14$ fill in the blank $15$ fill in the blank $16$

Rent fill in the blank $18$ fill in the blank $19$ fill in the blank $20$

Total overhead $fill in the blank $22$ $fill in the blank $23$ $fill in the blank $24$

$3.$ Based on the report, would you judge any of the variances to be significant? Can you think of some possible reasons for the variances? Select the number of the statement that supports the significance of the variances and reasons for the variances.

Variances in maintenance cost and indirect labor are significant. Variances could be caused by more preventive maintenance or higher labor cost.

Variance in Rent and power is significant. This could be mainly due to the changes in rates.

All variances are significant. Unfavorable variances in maintenance could be caused by more preventive maintenance and variance in indirect labor is due higher labor cost. Variance in power is due to decrease in power rates.

All variances are small and immaterial. Unfavorable variances in maintenance could be caused by more preventive maintenance and variance in indirect labor is due higher labor cost. Variance in power is due to decrease in power rates.