Question

Snow—Subunit X	Results	Flexible Budget	Variance (F or U)		(F or U)
Direct Materials	$29,000	$27,100
Direct Labor	14,000	14,500
Indirect Labor	26,800	23,500
Utilities	12,400	11,300
Depreciation	29,000	29,000
Repairs and Maintenance	4,700	5,800
Total	$115,900	$111,200

Edmonds chili Dog Company had the following financial results last? month above

Requiremnts

1.Complete the performance evaluation report for this subunit. Enter the variance percent as a percentage rounded to two decimal places.

Complete the performance evaluation report for this subunit. ?(Enter a variance for each account and select whether the variance is favorable? [F] or unfavorable? [U]. For any zero? variances, enter a 0 in the variance column and then leave the F or U box blank. Enter the variance percent as a percentage rounded to two decimal? places, X.XX%.)

2. Based on the data? presented, what type of responsibility center is this? subunit?

3. Which items should be investigated if part of? management's decision criteria is to investigate all variances exceeding? $2,500 or? 10%?

4. Should only unfavorable variances be? investigated? Explain.

	Actual	Flexible	Flexible Budget
Snow - Subunit X	Results	Budget	Variance (F or U)
Direct Materials	$29,000	$27,100
Direct Labor	14,000	14,500
Indirect Labor	26,800	23,500
Utilities	12,400	11,300
Depreciation	29,000	29,000
Repairs and Maintenance	4,700	5,800
Total	$115,900	$111,200

Answer 1

Snow-Subunit X	Actual Results	Flexible Budget	Variance(%)
Direct Material	$29000	$27100	$1900(F)(6.55%)
Direct Labour	$14000	$14500	-$500(U)(3.57%)
Indirect Labour	$26800	$23500	$3300(F)(12.31%)
Utilities	$12400	$11300	$1100(F)(8.87%)
Depreciation	$29000	$29000	$0(0%)
Repairs and Maintenance	$4700	$5800	-$1100(U)(23.40%)
Total	$115900	$111200	$4700(F) (4.06%)

Responsibility Center:

A responsibility Center is a part or subunit of a company for which a manager has a authority and responsibility.The company’s detailed organisation chart is logical source for determining responsibility Centers. The most common responsibility Centers are the departments within the company.

When the manager of a responsibility Center can control only cost the responsibility Center is referred to as cost Center. If a manager can control both cost and revenues the responsibility is know as profit Center. And if the manager can control cost, revenue and investment then the responsibility Center is Investment Center.

Looking at the above financial result of the sub unit the part of the result only comprises of all the cost and therefore the responsibility Center is the Cost Center.

Variance Analysis is a technique to control activities of the businesss. It is calculated by comparing actual result with budgeted results. It indicates where the problem may be, it does not tell the reason of the problem, and however it helps in highlighting the major areas of the differences. As it is not possinle for a company to find out the reason or tolerance limit is set for each activity. If the variance is beyond the limit , the reason is to be found out, so remedial actions can be taken. Also as sometimes variances are related to each other and therefore the reason for one favourable variance may result in unfavourable of other department. For E.g. Unfavourable labor rate variance may be good as the highly skilled labor would have been hired by paying more in dollars, but the labour efficiency variance was favourable due to expensive labor.

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