A department cost report is as follows: Actual results, planning budegt, Varianc

Question

A department cost report is as follows:

Actual results, planning budegt, Variances

Machine Hours: 25,000    30,000

Variable costs:

Suplies   6900   7500 600 F  

Scrap:   22000   22500   1500 F  

Indirect Materials:   65000 75000 10000 F

fixed costs:

Wages and Salaries: 679000 65000 2900 U

Equipment Depreciation   95000 95000 --

Total: 255800 265000 9200 F

Complete a new performence report for the quarter based on flexible budget performence approach. (Indicate the effect of each variance by choosing favorable, unfavorable, or none.)

Explanation / Answer

The budget that has been provided to us is more of a flexible budget as the first step of seggregating the Variable and Fixed cost has already been done.

We have to express the variable costs into machine/ hour.

Particulars Actual   Budget

Supplies   (6900/25000) = 0.276 per machine hour   (7500/25000) = 0.3 per machine hour

Scrap    (22000/25000) = 0.88 per machine hour   (22500/25000) = 0.9 per machine hour

Indirect Materials 65 per unit 75 per unit (Assumed production of 1000 units)

The production of any no. of units would not alter the per unit rates and the FC variances would remain same.

Favorable variance shows that the supplies, scrap and indirect materials are all being utilized to there fullest use and there is no need in altering any of this factor.

Whereas we can decrease the Wages and salaries by 2900 to be in a break even position and equipment depreciation if increases or decreases would alter the profitability.

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