## Saturday, 13 April 2013

### You have just been hired by SecuriDoor Corporation, the manufacturer of a

 You have just been hired by SecuriDoor Corporation, the manufacturer of a revolutionary new garage door opening device. The president has asked that you review the company’s costing system and “do what you can to help us get better control of our manufacturing overhead costs.” You find that the company has never used a flexible budget, and you suggest that preparing such a budget would be an excellent first step in overhead planning and control. After much effort and analysis, you determined the following cost formulas and gathered the following actual cost data for April:

 Cost Formula Actual Cost in April Utilities \$16,700 plus \$.14 per machine-hour \$ 21,020 Maintenance \$38,300 plus \$1.50 per machine-hour \$ 59,100 Supplies \$.40 per machine-hour \$ 7,000 Indirect labor \$94,700 plus \$1.80 per machine-hour \$ 128,000 Depreciation \$68,400 \$ 70,100

 During April, the company worked 16,000 machine-hours and produced 10,000 units. The company had originally planned to work 18,000 machine-hours during April.

 Required:

 1 Complete a report showing the activity variances for April. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "\$" sign in your response.)

 SecuriDoor Corporation Activity Variances For the Month Ended April 30 Utilities \$ F Maintenance F Supplies F Indirect labor F Depreciation None Total \$ F

 2 Complete a report showing the spending variances for April. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "\$" sign in your response.)

 SecuriDoor Corporation Spending Variances For the Month Ended April 30 Utilities \$ U Maintenance F Supplies U Indirect labor U Depreciation U Total \$ U

Explanation:
 1. The activity variances are shown below:

 SecuriDoor Corporation Activity Variances For the Month Ended April 30 Planning Budget Flexible Budget Activity Variances Machine-hours (q) 18,000 16,000 Utilities (\$16,700 + \$.14q) \$ 19,220 \$ 18,940 \$ 280 F Maintenance (\$38,300 + \$1.50q) 65,300 62,300 3,000 F Supplies (\$.40q) 7,200 6,400 800 F Indirect labor (\$94,700 + \$1.80q) 127,100 123,500 3,600 F Depreciation (\$68,400) 68,400 68,400 0 None Total \$ 287,220 \$ 279,540 \$ 7,680 F

 2. The spending variances are computed below:

 SecuriDoor Corporation Spending Variances For the Month Ended April 30 Flexible Budget Actual Results Spending Variances Machine-hours (q) 16,000 16,000 Utilities (\$16,700 + \$.14q) \$ 18,940 \$ 21,020 \$ 2,080 U Maintenance (\$38,300 + \$1.50q) 62,300 59,100 3,200 F Supplies (\$.40q) 6,400 7,000 600 U Indirect labor (\$94,700 + \$1.80q) 123,500 128,000 4,500 U Depreciation (\$68,400) 68,400 70,100 1,700 U Total \$ 279,540 \$ 285,220 \$ 5,680 U

 The KGV Blood Bank, a private charity partly supported by government grants, is located on the Caribbean island of St. Lucia. The blood bank has just finished its operations for September, which was a particularly busy month due to a powerful hurricane that hit neighboring islands causing many injuries. The hurricane largely bypassed St. Lucia, but residents of St. Lucia willingly donated their blood to help people on other islands. As a consequence, the blood bank collected and processed over 20% more blood than had been originally planned for the month. A report prepared by a government official comparing actual costs to budgeted costs for the blood bank is given below. (The currency on St. Lucia is the East Caribbean dollar.) Continued support from the government depends on the blood bank’s ability to demonstrate control over its costs.

 KGV Blood Bank Cost Control Report For the Month Ended September 30 Planning Budget Actual Results Variances Liters of blood collected 600 780 Medical supplies \$ 6,960 \$ 9,102 \$ 2,142 U Lab tests 8,670 10,842 2,172 U Equipment depreciation 1,300 1,500 200 U Rent 1,300 1,300 0 Utilities 280 304 24 U Administration 14,360 14,625 265 U Total expense \$ 32,870 \$ 37,673 \$ 4,803 U

 The managing director of the blood bank was very unhappy with this report, claiming that his costs were higher than expected due to the emergency on the neighboring islands. He also pointed out that the additional costs had been fully covered by payments from grateful recipients on the other islands. The government official who prepared the report countered that all of the figures had been submitted by the blood bank to the government; he was just pointing out that actual costs were a lot higher than promised in the budget. The following cost formulas were used to construct the planning budget:

 Medical supplies \$11.60q Lab tests \$14.45q Equipment depreciation \$1,300 Rent \$1,300 Utilities \$280 Administration \$13,400 + \$1.60q

 Required:

 1 Complete the performance report for September using the flexible budget approach. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Round your answers to the nearest whole dollar amount. Omit the "\$" sign in your response.)

 KGV Blood Bank Flexible Budget Performance Report For the Month Ended September 30 Activity Variances Spending Variances Medical supplies \$ U \$ U Lab tests U F Equipment depreciation None U Rent None None Utilities None U Administration U F Total expense \$ U \$ F

Explanation:
 Performance should be evaluated using a flexible budget performance report. In this case, the report will not include revenues.

 KGV Blood Bank Flexible Budget Performance Report For the Month Ended September 30 Planning Budget Activity Variances Flexible Budget Spending Variances Actual Results Liters of blood collected (q) 600 780 780 Medical supplies (\$11.60q) \$ 6,960 \$ 2,088 U \$ 9,048 \$ 54 U \$ 9,102 Lab tests (\$14.45q) 8,670 2,601 U 11,271 429 F 10,842 Equipment depreciation (\$1,300) 1,300 0 None 1,300 200 U 1,500 Rent (\$1,300) 1,300 0 None 1,300 0 None 1,300 Utilities (\$280) 280 0 None 280 24 U 304 Administration (\$13,400 + \$1.60q) 14,360 288 U 14,648 23 F 14,625 Total expense \$ 32,870 \$ 4,977 U \$ 37,847 \$ 174 F \$ 37,673