Freemont Corporation-Machining Department Cost Control Report For the Month Ended June 30 Planning Budget Actual Results Variances Machine-hours 38,000 35,000 $ 86,100 $ 80,500 21,000 134,000 $ 5,600 U 2,100 U Direct labor wages Supplies ... Maintenance 23,100 137,300 3,300 U 500 U 15,700 38,000 Utilities 15,200 38,000 Supervision Depreciation 80,000 80,000 Total $380,200 $368,700 $11,500 U Roshardying Fleible Budget Pefomance Repot For the Month Ended March 31 Revenue and O Spending Acity Actual Varinces Rexble Verinces Paning Results (0-0 Budget 2-9) Budget Client-vits 1,100 1,00 1,00 Rasenue $180.0). $194,200 $3.800 U $198000 $18,000 F $1800 Epersesr Wagesad sarie 6500 $370. Haistigspie $150). 106,900 1,00 U 105,700 3700 U 102000 ..... 1,620 30 F 1,60 150 U 1,500 410 U 4,100 6870 2360 U 4,510 Becicty $1,00 $0.0). Rert (2,50). Labity isuance $2.0. Emplyee heath isuance $21,30) Miscelaneus $1.200 $20). 1,50 60 F 1,510 10 U 1600 28,00 0 2,500 28,00 2,800 2.00 2,600 1,300 U 21300 710 U 1420 2,800 21,300 2,130 20 U 1,00 Totalexense. 172,970 5.480 U 167490 4290 U 163200 Net opeaing home. $ 21.30 $9.280 U $30510 $13.710 F $ 16,800
Critiquing a Cost Report; Preparing a Performance Report
Frank Weston, supervisor of the Freemont Corporation’s matching 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:
“I just can’t understand all of these unfavorable variances,” Weston complained to the supervisor of another department. “When the boss called me in, 1 thought he was going to give me a pat on the back because 1 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.
Exhibit 9–8 Performance Report Combining Activity Variances with Revenue and Spending Variances
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