At the end of 2014, Cyril Fedako, CFO for Central Products, received a report comparing budgeted and actual production costs for the company’s plant in Forest Lake, Minnesota:
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 60,000 units. The Forest Lake plant actually produced 65,000 units in 2014.
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 investigating every departure from the budget. With this in mind, which cost(s) should Cyril concentrate on in his investigation of budget differences? Round calculations to 2 decimal places.