Question

One subunit of Pike Sports Company had the following financial results last month:

Pike-Subunit X	Actual Results	Flexible Budget	Flexible Budget Variance (F or U)	% Variance (F or U)
Direct Materials	$28,800	$27,000
Direct Labor	13,400	14,200
Indirect Labor	26,100	23,000
Utilities	12,200	11,300
Depreciation	29,000	29,000
Repairs and Maintenance	4,800	5,700
Total	$114,300	$110,200

Requirements:

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

Answer 1

Solution:

Pike-Subunit X	Actual Results	Flexible Budget	Flexible Budget Variance (F or U)	% Variance (F or U)
Direct Materials	$28,800	$27,000	6.67%	U
Direct Labor	13,400	14,200	5.63%	F
Indirect Labor	26,100	23,000	13.48%	U
Utilities	12,200	11,300	7.96%	U
Depreciation	29,000	29,000	0%	No Variance
Repairs and Maintenance	4,800	5,700	15.79%	F
Total	$114,300	$110,200	3.72%	U

Calculation of Percentage based on Flexible Budget Data

	Actual	Flexible			Flexible Budget
Plke - Subunit X	Results	Budget	Variance $	F or U	Variance (F or U)
Direct Materials	$28,800	$27,000	$1,800	U	(1800/27,000) = 6.67%	U
Direct Labor	13,400	14,200	$800	F	(800 / 14,200) = 5.63%	F
Indirect Labor	26,100	23,000	$3,100	U	(3,100/23,000) = 13.48%	U
Utilities	12,200	11,300	$900	U	(900 / 11,300) = 7.96%	U
Depreciation	29,000	29,000	$0	No variance	0.00%	No Variance
Repairs and Maintenance	4,800	5,700	$900	F	(900 / 5,700) = 15.79%	F
Total	$114,300	$110,200	$4,100	U	(4,100 / 110,200) = 3.72%	U

2- The subunit is a cost center .

3-The following items should be investigated:-

Indirect labor

Repairs and maintenance

4-No, should be investigated to make sure they are not hurting the business in the long run.