Chapter 24, Problem E24.22E

To determine

Preparation of responsibility report of cost centers determines the element of cost to be investigated based on variance exceeding the limits fixed. It describes the step by step computation of performance report of cost centers and determination of items of cost needed by the management for investigation.The Flexible budget is prepared by adjusting the master budgeted cost (Static budgeted cost) based on actual level of activity. The difference between flexible budgeted cost and actual cost will be taken as variance. When the actual cost is lesser than the cost as per the flexible budget, then the variance is favorable.

The method of preparation of performance report of cost center and element of cost requiring analysis by the management for variances.