Search.DeanP8-1.21A - 3 see tab for part 3 4 From the...

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1. The report is not very useful. The reason is that the activity level differs between the budget and actual. Comparing costs at different activity levels is not correct since the variable costs would differ with activity level. In this case the actual activity at 35,000 machine hours is less than the planned activity at 40,000 hours and so the actual variable costs would be less and result in favorable variance. This may not be a correct interpretation as the costs are lower due to lower activity level and not due to better cost control. 2. The report should be based on a flexible budget rather than a static budget. The planning budget should be adjusted to the actual level of activity. By doing this, we would change the budgeted variable costs to the actual activity level and then we can compare these costs to the actual costs since both are at the same activity level.
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Unformatted text preview: 3. see tab for part 3 4. From the flexible budget we see that the costs were not well controlled in the department. All variable costs are higher than the flexible budget and though the fixed costs are somewhat lower, the overall costs are much higher resulting in unfavorable variance in costs. Assembly Department Flexible Budget Performance Report For the Month Ended March 31 Planning Budget Activity Variances Flexible Budget Spending Variances Actual Results Machine-hours 40,000 35,000 35,000 Supplies 32000 2300F 28000 $1,700 29700 Scrap 20,000 500F 17500 2,000 19,500 Indirect materials 56,000 4,200F 49,000 2,800 51,800 Wages and salaries 80,000 800F 80,000 800 79,200 Equipment depreciation 60000-F 60,000-60000 Total $248,000 $7,800 F 234500 $7,300 $240,200...
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Search.DeanP8-1.21A - 3 see tab for part 3 4 From the...

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