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Alpha Company uses budgets in controlling costs

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Alpha Company uses budgets in controlling costs. The May 2020 budget report for the company's Packaging Department is as follows. Alpha Company Budget Report Packaging Department For the Month Ended May 31, 2020 Budgeted Actual Variance Manufacturing Costs Variable costs Direct materials Direct labor Indirect materials Indirect labor Utilities Maintenance Total variable Fixed costs Rent Supervision Depreciation Total fixed Total Costs €40.000 45,000 15,000 12,500 10.000 7.500 130.000 €41,000 47.300 15,200 13,000 9.600 8,000 134,100 €1.000 U 2.300 U 200 U 500 U 400 F 500 UN 4.100 U 10,000 7,000 4,000 21.000 €15000 10.000 7.000 4,000 21.000 €155.100 ¢¢¢¢ 3 € 4,1000
The monthly budget amounts in the report were based on an expected production of 50,000 units per month or 600,000 units per year. The company president was displeased with the department manager's performance. The department manager, who thought he had done a good job, could not understand the unfavorable results. In May, 55,000 units were produced, Required: a) Prepare a proper performance report for May using flexible budget data. (75%) b) Explain why does the report that you have prepared in a) is a better basis for evaluating performance than the report based on static budget data. Also comment on the variances of the initial report and the ones you have derived above in a). (25%)