Cornerstones of Managerial Accounting 6th Edition by Maryanne Mowen,Don Hansen ,Dan Heitger

Exercise 49

Performance Report Based on Actual Production
Ladan Suriman, controller for Healthy Pet Company, has been instructed to develop a flexible budget for overhead costs. The company produces two types of dog food. BasicDiet is a standard mixture for healthy dogs. SpecialDiet is a reduced protein formulation for older dogs with health problems. The two dog foods use common raw materials in different proportions. The company expects to produce 80,000 bags of each product during the coming year. BasicDiet requires 0.20 direct labor hours per bag, and SpecialDiet requires 0.30 direct labor hours per bag. Ladan has developed the following fixed and variable costs for each of the four overhead items:

Refer to the information for Healthy Pet Company above. Assume that Healthy Pet actually produced 100,000 bags of BasicDiet and 90,000 bags of SpecialDiet. The actual overhead costs incurred were as follows:

Required:
1. Calculate the number of direct labor hours budgeted for actual production of the two products.
2. Prepare a performance report for the period based on actual production.
3. CONCEPTUAL CONNECTION Based on the report, would you judge any of the variances to be significant? Can you think of some possible reasons for the variances?