Reuse Products, LLC, manufactures plastic beverage bottles. The division that man- ufactures water bottles for the North American market has two plants that operate 24 hours a day, 365 days a year. The plants are evaluated as cost centers. Small tools and supplies are considered variable overhead. Depreciation and rent are considered fixed overhead. For the month, the master budget for a plant and the actual operating results of the two North American plants, North and South, follow.
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Cost Category (Variable Unit Cost)
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Master Budget
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north Actual
|
south Actual
|
|
Center costs:
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|
|
|
|
Plastic pellets ($0.009)
|
$4,500,000
|
$3,880,000
|
$5,500,000
|
|
Caps ($0.004)
|
2,000,000
|
1,990,000
|
2,000,000
|
|
Direct labor ($0.002)
|
1,000,000
|
865,000
|
1,240,000
|
|
Small tools and supplies ($0.0005)
|
250,000
|
198,000
|
280,000
|
|
Depreciation and rent
|
450,000
|
440,000
|
480,000
|
|
Total cost
|
$8,200,000
|
$7,373,000
|
$9,500,000
|
|
Performance measures:
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|
|
|
|
Bottles processed per hour
|
69,450
|
62,000
|
70,250
|
|
Average daily pounds of scrap
|
5
|
6
|
7
|
|
Bottles processed (in millions)
|
500
|
450
|
520
|
Required:
1. Prepare a performance report for the North plant. Include a flexible budget and variance analysis.
2. Prepare a performance report for the South plant. Include a flexible budget and variance analysis.
3. Compare the two plants, and comment on their performance.
4. Explain why a flexible budget should be prepared.