Adrian Power

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?