Standard pine benches are assembled and packed in the bench assembly department of Furniture Manufacture Ltd. The department is treated as a cost center. Control reports prepared every month consist of a statement comparing actual costs incurred in the department with the level of costs which was budgeted at the start of the month. For the month of June Year 6 the following control report was produced, and received favorable comment from the directors of the company. Bench Assembly Department Control Report for June Year 6
|
Budgeted cost |
Actual cost |
Variance1 |
|||
|
Fixed |
Variable |
Total |
|||
|
£ |
£ |
£ |
£ |
£ |
|
|
Direct labour |
– |
36,000 |
36,000 |
30,000 |
6,000 (F) |
|
Indirect labour |
6,000 |
8,000 |
14,000 |
14,000 |
– |
|
Indirect materials |
– |
4,000 |
4,000 |
3,500 |
500 (F) |
|
Power |
3,000 |
12,000 |
15,000 |
9,000 |
6,000 (F) |
|
Maintenance materials |
– |
5,000 |
5,000 |
3,000 |
2,000 (F) |
|
Maintenance labour |
5,000 |
4,000 |
9,000 |
15,000 |
6,000 (A) |
|
Depreciation |
85,000 |
– |
85,000 |
75,000 |
10,000 (F) |
|
Production overhead |
– |
20,000 |
20,000 |
15,000 |
5,000 (F) |
Due to a power failure, the level of production achieved was only 75% of that expected when the budget was prepared. No adjustment has been made to the original budget because the departmental manager claims that the power failure which caused the loss of production was beyond his control.
Required
Prepare a memorandum to the directors of the company:
1. Explaining the weaknesses in the existing form of control report.
2. Presenting the control report in such a way as to give a more meaningful analysis of the costs.
3. Assessing the performance of the Bench Assembly Department during the month.