Question:

Performance report: At the end of 2008. Cyril Fedako, CFO for Fedako products, received a report comparing budgeted and actual production costs for the company's plant in forest lake, Minnesota:

Manufacturing costs

Forest lake plant

Budget versus actual 2008

Budget Actual Difference

Materials $3,000,000 $3,300,000 $300,000

Direct labor 2,100,000 2,300,000 200,000

Supervisory salaries 375,000 400,000 25,000

Utilities 75,000 85,000 25,000

Machine maintenance 250,000 280,000 10,000

Depreciation of building 50,000 50,000 -0-

Depreciation of equipment 200,000 205,000 5,000

Janitorial 120,000 135,000 15,000

Total $6,170,000 6,755,000 585,000

His first thought was that costs must be out of control since actual costs exceed the budget by $585,000. However, he quickly recalled that the budget was set assuming a production level of $50,000 units. The forest lake plant actually produced $55,000 units in 2008.

Required:

A. Given that production was greater than planned, should Cyril expect that all actual costs will be greater than budgeted? Which costs would you expect to increase, and which costs would you expect to remain relatively constant?

B. Cyril is extremely busy-the company has six other plants. Therefore, he cannot spend time investigation every department from the budget. With this in mind, which costs should Cyril concentrate on his investigation of budget differences?