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) Prepare a flexible budget and performance report for the March quarter. Calculate percentage variances to two decimal places.

b) Evaluate the production managers performance for the March quarter. Take into account the following organisational policies and procedure:

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

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

Solution template

a) Flexible Budget and Performance Report Template

	Actual	Flexible Budget	Variance $	Variance %	F or U/F
Raw materials
Direct labour
Variable factory overhead
Fixed factory overhead
Total cost of production