u have just been hired by securiDoor Corporation, the manufacture of a revolutionary new garage door opening device. The president has asked that you review the company’s costing system and “do what you can to help us get better control of our manufacturing overhead costs.” You find that the company has never used a flexible budget, and you suggest that preparing such a budget would be an excellent first step in overhead planning and control.

After much effort and analysis, you determined the following cost formulas and gathered the following actual cost data for April:

Cost formula                      Actual cost in April

Utilities         $16,000 plus $.16 per machine-hour         $20,840

Maintenance $38,200 plus $1.70 per machine-hour       $64,300

Supplies        $.80 per machine-hour                               $15,000

Indirect labor $94,900 plus $2.00 per machine-hour       $133,800

Depreciation  $68,300                                                      $70,000


During April, the company worked 17,000 machine-hours and produced 11,000 units. The company had originally planned to work 19,000 machine-hour during April.


1. Complete a report showing the activity variance for April.



2. The KGV blood bank, a private charity partly supported by government grants, is located on the Caribbean island of St. Lucia. The blood bank has just finished its operations for September, which was the particularly busy moth due to a powerful hurricane that hit neighboring islands causing many injuries. The hurricane largely bypassed St. Lucia, but residence of St. Lucia willingly donated their blood to help people on other islands as a consequence, the blood bank collected and processed over 20% more blood than had been originally planned for the month.

A report prepared by a government official comparing actual costs budgets costs for the blood bank is given below. (The currency on St. Lucia is the East Caribbean dollar.) Continued support from the government depends on the blood bank’s ability to demonstrate control over its costs.

KGV Blood Bank

Cost Control Report

For The March Ended September 30

Planning Budget    Actual Result        Variance

Liters of blood collected             700                         880

Medical supplies                  $  8,225                $  10,367                   $2,142     U

Lab tests                                 10,185                     12,357                    2,172     U

Equipment depreciation           2,000                       2,200                       200     U

Rent                                          1,200                       1,200                           0     U

Utilities                                       320                          344                          24     U

Administration                       14,130                     14,395                        265    U

Total expenses                    $  36,060              $     40,863                  $ 4,803   U



The managing director of the blood bank was very unhappy with this report, claming that his costs were higher than expected due to the emergency on the neighboring islands. He also pointed out that the additional costs had been fully covered by payments from grateful recipients on the other islands. The government official who prepared the report countered that all of the figures had been submitted by the blood bank to the government; he was just point out that actual costs were a lot higher than promised in the budget.

The following costs formulas were used to construct the planning budget;

Medical supplies                   $   11.75q

Lab tests                                $    14.55q

Equipment depreciation        $    2,000

Rent                                       $    1,200

Utilities                                  $       320

Administration             $12,800+$1.90q



1. Complete the performance report the September using the flexible budget approach.



3. Facilitator Corp. is a company that acts as a facilitator in tax-favored real estate swap. Such swaps, know as 1031exchanges, permit participants to avoid some or all of the capital gains taxes that would otherwise be due. The bookkeeper for the company has been asked to prepare a repot for the company to help its owner/manager analyze performance. The first such report appears below:

Facilitator Corp

Analysis of Revenues and costs

For the Month Ended May31

Planning Budget Unit       Actual Unit                      Variances

Revenues and Costs       Revenues and Costs

Exchanges complete                    25                                    30

Revenue                                    $580                                $530                         $  50    U


Legal and search fees                 152                                 155                                3    U

Office expenses                          168                                 134                              34     F

Equipment depreciation               27                                   21                                6     F

Rent                                             72                                   58                                14    F

Insurance                                     16                                   13                                   3   F

Total expenses                           435                                 381                                54    F

Net Operating Income              $145                                $149                          $      4   F



Note that the revenues and cost in the above repot are unit revenues and costs. For the example, the average office expenses is $168 per exchange complete on the planning budget; whereas, the average actual office expense is $134 per exchange complete.


All the company’s revenues come from fees collected when an exchange is complete.

2. Complete a performance report that would help the owner/manager assess the performance of the company in My.

