ASC\'s production line manager Tom Raymond is having trouble understanding his d
ID: 2416842 • Letter: A
Question
ASC's production line manager Tom Raymond is having trouble understanding his department's poor performance in the past month. Below is the cost control report the Controller provided him in a tense meeting: Tom is very concerned after his meeting, as he thought his department performed very well last period. Based on the report above, the Controller believes drastic measures need to be taken to correct these overages. Tom has been tasked with getting his costs under control before the next month's end or else. Direct labor wages and supplies are variable costs; supervision and depreciation are fixed costs. Maintenance and utilities are mixed costs. The fixed component of the budgeted maintenance cost is $100,000 and the fixed component of the budgeted utilities cost is $13,750. Required: a. Review ASC's report above and explain why all the variances are unfavorable. b. Prepare a performance report that will assist Tom in explaining to the Controller how well costs were actually controlled in his department.Explanation / Answer
Particulars Actual results Planning budget Variences Actual Rate Budgeted Rate Reason for varience ( answer for both a & b) Machine Hours 41000 37500 Direct Labour Wages 93000 86250 -6750 2.27 2.30 Even though Actual rate is favourable but due to actual no of machine hours , the total wages is unfavourable. Supplies 24000 22500 -1500 0.59 0.55 Both the Actual Machine hours as well as rate are unfavourable. Maintenance Fixed 100000 100000 0 Variable 49000 45000 -4000 1.20 1.10 Both the Actual Machine hours as well as rate are unfavourable. Utilities 0 Fixed 13750 13750 0 Variable 4750 3750 -1000 0.12 0.09 Both the Actual Machine hours as well as rate are unfavourable. Supervision 40000 40000 Depreciation 83000 83000 -13250