Chapter 9, Problem 26P

PROBLEM 9-26 Critiquing a Cost Report; Preparing a Performance Report LO9-1, LO9-2, LO9-3, LO9-4, LO9-6

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
	Actual Results	Planning Budget	Variances
Machine-hours	38,000	35,000
Direct labor wages	$86,100	$ 80,500	$5,600 U
Supplies	23,100	21,000	2,100 U
Maintenance	137,300	134,000	3,300 U
Utilities	15,700	15,200	500 U
Supervision	38,000	38,000	0
Depreciation	80.000	80.000	0
Total	$380,200	$368,700	$11,500 U

1 just can’t understand all of these unfavorable variances.” 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. Using Exhibit 9-8 as your guide, prepare a performance report that will help Mr. Weston’s superiors assess how well costs were controlled in the Machining Department.