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Evaluating Cost Center Performance P 6 Plastic Products LLC manufactures plastic beverage bottles. The division that manufactures water bottles for the North American market has two plants that

Evaluating Cost Center Performance

P 6. Plastic Products, LLC, manufactures plastic beverage bottles. The division that manufactures 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. The master budget for a plant and the operating results of the two North American plants, North and South, are as follows:

Center costs

Master Budget

North Actual

South Actual

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

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.

Jun 19 2020 View more View Less

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