Frank Weston, supervisor of the Freemont Corporation’s Machining Department, was visibly upset afterbeing reprimanded for his department’s poor performance over the prior month. The department’s costcontrol report is given below:Freemont Corporation–Machining DepartmentCost Control ReportFor the Month Ended June 30Planning Budget Actual Results VariancesMachine-hours ..................... 35,000 38,000Direct labor wages ............... $ 80,500 $ 86,100 $ 5,600 USupplies ............................... 21,000 23,100 2,100 UMaintenance ........................ 134,000 137,300 3,300 UUtilities ................................. 15,200 15,700 500 USupervision .......................... 38,000 38,000 0Depreciation ........................ 80,000 80,000 0Total ..................................... $368,700 $380,200 $11,500 U“I just can’t understand all the red ink,” Weston complained to the supervisor of another department.“When the boss called me in, I thought he was going to give me a pat on the back because I know for a factthat my department worked more efficiently last month than it has ever worked before. Instead, he tore meapart. I thought for a minute that it might be over the supplies that were stolen out of our warehouse lastmonth. But they only amounted to a couple of hundred dollars, and just look at this report. Everything isunfavorable.”Direct labor wages and supplies are variable costs; supervision and depreciation are fixed costs;and maintenance and utilities are mixed costs. The fixed component of the budgeted maintenance cost is$92,000; the fixed component of the budgeted utilities cost is $11,700.Required:1. Evaluate the company’s cost control report and explain why the variances were all unfavorable.2. Prepare a performance report that will help Mr. Weston’s superiors assess how well costs werecontrolled in the Machining Department.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Frank Weston, supervisor of the Freemont Corporation’s Machining Department, was visibly upset after
being reprimanded for his department’s poor performance over the prior month. The department’s cost
control report is given below:
Freemont Corporation–Machining Department
Cost Control Report
For the Month Ended June 30
Planning Budget Actual Results Variances
Machine-hours ..................... 35,000 38,000
Direct labor wages ............... $ 80,500 $ 86,100 $ 5,600 U
Supplies ............................... 21,000 23,100 2,100 U
Maintenance ........................ 134,000 137,300 3,300 U
Utilities ................................. 15,200 15,700 500 U
Supervision .......................... 38,000 38,000 0
Total ..................................... $368,700 $380,200 $11,500 U
“I just can’t understand all the red ink,” Weston complained to the supervisor of another department.
“When the boss called me in, I thought he was going to give me a pat on the back because I know for a fact
that my department worked more efficiently last month than it has ever worked before. Instead, he tore me
apart. I thought for a minute that it might be over the supplies that were stolen out of our warehouse last
month. But they only amounted to a couple of hundred dollars, and just look at this report. Everything is
unfavorable.”
Direct labor wages and supplies are variable costs; supervision and depreciation are fixed costs;
and maintenance and utilities are mixed costs. The fixed component of the budgeted maintenance cost is
$92,000; the fixed component of the budgeted utilities cost is $11,700.
Required:
1. Evaluate the company’s cost control report and explain why the variances were all unfavorable.
2. Prepare a performance report that will help Mr. Weston’s superiors assess how well costs were
controlled in the Machining Department.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
