Performance Report

Precision Tools Company

Performance Report - Machining Department

If you look at the given Performance Report that is given, it is prepared at the beginning of the budgeting period and is valid for only the planned level of activity and is inadequate for evaluating how well costs are controlled. If activity is higher than expected, variable costs should be higher than expected, we can see all variance will be unfavourable on the surface because we used more machine hours than the Static Budget. This report needs to be re-arranged to compare variances more accurately:

38000 38000 35000

Overheads Unit Cost Actual Variance Flexible Variance Static

Utilities 0.40 15700 500U 15200 1200U 14000

Indirect labour 2.30 86500 900F 87400 6900U 80500

Supplies 0.60 26000 3200U 22800 1800U 21000

Maintenance 1.20 44900 700F 45600 3600U 42000

173100 2100U 171000 13500U 157500

Spending Efficiency

15600U

From this new Performance Report we can see that 13.5% of the unfavourable variance is due to the Spending Variances and 86.5% Efficiency Variance.

The unfavourable spending variances are Supplies and Utilities, we use variance analysis to look at this closer and find that the problems are with the price and the quantity used.

Spending Variance - Supplies

AQ $38000 AQ $38000 SQ $35000

* * *

AP ? SP $0.60 SP $0.60

$26000 $22800 $21000

Price 3200U 1800U Quantity

Spending Variance - Utilities

AQ $38000 AQ $38000 SQ $35000

* * *

AP ? SP $0.40 SP $0.40

$15700 $15200 $14000

Price 500U 1200U Quantity

The Purchasing Manager has control over the price paid for Supplies and is responsible for any price variances, circumstances may have arose that could not have been helped e.g. sudden orders; ordering in small quantities increases the average cost of materials as the delivery expenses is the same for bulk orders or small orders. Increases in the Utilities looks to be the cause of over use of them e.g. employee theft of staff amenities, wastage of use. These should be all the responsibility of the supervisor, action needs to be taken to strengthen these unfavourable variances.

Efficiency Variance - Indirect Labour

AQ $38000 AQ $38000 SQ $35000

* * *

AP ? SP $2.30 SP $2.30