Task 4 - 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 labour and variable manufacturing expenses are proportional to the units produced.

Required tasks:

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. Use the template provided on page 9.

Refer to Water Play Policies & Procedures where necessary (FNSACC523_AT2_WaterPlay_P&P_TQM_v1)

b) Evaluate the production manager's performance for the March quarter. Your evaluation must refer to and comment on the following organisational policies and procedure:

• an unfavourable variance between the flexible budget and the actuals of up to 2% is tolerated without question
• managers receive a bonus for favourable variances between the flexible budget and the actuals in total cost of production greater than 1.5%.

c) What changes would you recommend be made to the budget for future quarters.