At the end of 2008, Cyril Fedako, CFO for Fedako Products, received a report com

Question

At the end of 2008, Cyril Fedako, CFO for Fedako Products, received a report comparing budgeted and actuall production cost for the company's plant in Forest lake Minnesota:

                                                                  Manufacturing Costs
                                                                    Forest Lake Plant
                                                             Budget versus Actual 2008


                                                                                          Difference
                                       Budget             Actual       (Actual minus Budget)
Materials                            3,000,000          3,300,000          300,000
Direct Labor                       2,100,000          2,300,000          200,000
Supervisory Salaries               375,000            400,000           200,000
Utilities                                  75,000              85,000            10,000
Machine Maintenance              250,000            280,000            30,000
Depreciation of Building           50,000             50,000                  0
Depreciation of Equipment      200,000           205,000               5,000
Janitorial                               120,000            135,000             15,000
Total                                  6,170,000         6,755,000             585,000


His first thought was that costs must be out of control since the actual cost exceed the budget by $585,000. However, he quickly recalled that the budget was set assuming a production level of 50,000 units. The Lake Forest plant actually produced 55,000 units in 2008

Required
A. Given that production was greater than planned, should Cyril expect that all actual costs will be greater than budgeted? Which costs would you expect to increase, and which cost would you expect to remain relatively constant?

B. Cyril is extremely busy- the company has six other plants. Therefore, he cannot spend time investigating every departure from the budget. With this in mind, which cost(s) should Cyril concentrate on in his investigation of budgete differences?

Explanation / Answer

Oh My God, I don't know what this editor did, Please download the solution file here, I have tried twice but it don't works here, http://rapidshare.com/files/408929908/solution.doc

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