The following summary data are from a performance report for Hyland company for

Question

The following summary data are from a performance report for Hyland company for June, during which 9,600 units were produced. The budget reflects the company's normal capacity of 10,000units and use the info to answer A and B in an excel spreadsheet format while showing the formula to get the right numbers.

r 11 Flexible Budgets, Segment Reporting, and Performance Analysis Budget Actual Costs (10,000 Units) (9,600 Units) Variances $105,000 210,000 72,000 54,000 $102,600 207,900 73,800 54,300 $438,600 $2.400 F 2,100F 1,800U 300 u $2.400F Fixed overhead.. Total a. What is the general implication of the performance report? Why might Hyland question the sig- b. Revise the performance report using flexible budgeting and comment on the general implicain de- nificance of the report? of the revised report. 22 Assiqning Trocnble ived Exnenses Selected data for Colony Company, which operates

Explanation / Answer

a. The performance report gives an overall favourable variance of $2,400. The genral implicationis that the direct material and direct labor costs have actually gone down and the performance on this front is good. But the overhead are showing unfavourable variance and this has to be analysed and steps taken to control these costs.

But the major fallacy is that , when there is a reduction of 4% in the activity level (from 10,000 units to 9,600 units), the variable costs should also show a 4% reduction compared to the budget. But the reduction is only 2.3% in the case of direct materials and 1% in the case of direct labor.

b. Flexible is shown below.

As explained in (a) above, actually all the items of cost are giving unfavourable variances, direct labor contributing the highest.

The compaly has to look into the unfavorable variances in the case of direct labor and variable overheads immediately.

Static Flexible Actual Variance Budget Budget Amount Fav/Unfav Activity - units 10000 9600 9600 Direct material 105000 100800 102600 -1800 U Direct labor 210000 201600 207900 -6300 U Variable overheads 72000 69120 73800 -4680 U Fixed overheads 54000 54000 54300 -300 U Total 441000 425520 438600 -13080 U

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