Adrian Power manufactures small power supplies for car stereos. The company uses flexible budgeting techniques to deal with the seasonal and cyclical nature of the business. The accounting department provided the accompanying data on budgeted manufacturing costs for the month of January:
ADRIAN POWER
Planned Level of Production for January
Budgeted Production (in units) 14,000
Variable Cost (vary with production)
Direct Material $140,000
Direct Labor 224,000
Indirect Labor 21,000
Indirect Material 10,500
Maintenance 6,300
Fixed cost
Supervision 24,700
Other (depreciation, taxes, ect.) 83,000
Total plant cost $510,000
Actual operations for January are summarized as
ADRIAN POWER
Actual Operations for January
Actual Production (in units) 15,400
Actual Cost incurred
Direct Material $142,400
Direct Labor 259,800
Indirect Labor 27,900
Indirect Material 12,200
Maintenance 9,800
Supervision 28,000
Other (depreciation, taxes, ect.) 83,500
Total plant cost $563,600
Required:
a. Prepare a report comparing the actual operating results with the flexible budget at actual production. b. Write a short memo analyzing the report prepared in part (a). What likely managerial implications do you draw from this report? What are the numbers telling you?
