Mussatto Company expects to produce 47,400 units of product IOA during the curre

Question

Mussatto Company expects to produce 47,400 units of product IOA during the current year. Budgeted variable manufacturing costs per unit are direct materials $7, direct labor $13, and overhead $19. Annual budgeted fixed manufacturing overhead costs are $90,792 for depreciation and $43,392 for supervision. In the current month, Mussatto produced 5,630 units and incurred the following costs: direct materials $36,392, direct labor $72,159, variable overhead $115,066, depreciation $7,566, and supervision $3,376. Prepare a flexible budget report. Were costs controlled?

Explanation / Answer

As evident from the table above that there is a total variance of $4807 which is unfavourable to the cost. It signifies that the cost is not controllable. Also it can be seen that the main component of cost which is not under control is variable overhead parts. It means that the company need to focus on variable overhead component to improve the cost

Particulars Budget Actual Differences Direct material 5630*7 =39410 36892 2518 F Direct Labor 5630*13 = 73190 72159 1031 F Variable overhead 5630*19 =106970 115066 8096 U Fixed Overheads 134184/12 =11182 11442 260 U Net variance 4807 U

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