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Management Control System

Group Assignment: April 31st, 2015


GROUP 7: 64 INTERNATIONAL B
Putri Amandhari | Septania Wibowo |Tommy Lesmana |
Ummi Aliyah
1. What is your assessment of the method the administrator used to
construct the budget?
In our group opinion, the method used to construct the budget was not proper
because it was lack of many elements in calculating the budget forecasting.
For example, it did not consider inflation, economic growth, increasing prices,
etc. Instead, the administrator reduced the previous average budget by 3%
due to instalation fee paid in the previous year. On the other hand, prices are
getting higher because of the inflation, economic growth, and the increase of
life quality.
2. Prepare a flexible budget for the laundry departement. What does it
tell you?
Flexible Budget
Units
Variable Cost

Unit
Cost/Unit

125000

150000

175000

Laundry Labor

0.072

9000

10800

12600

Supplies

0.009

1125

1350

1575

Water

0.014

1750

2100

2450

Maintenance

0.011

1375

1650

1925

Equipment
Depreciation

1250

1250

1250

1250

Salary

3125

3125

3125

3125

Allocated Admin
Costs

4000

4000

4000

4000

21625

24275

26925

Fixed Cost

Total

The management should separate the variable cost and the fixed cost. The
difference happened in the budget and the actual happens because of the changes
of the variable cost.

If they separate the variable and the fixed cost, they will

anticipate to the changes of the quantities.

Management Control System


Group Assignment: April 31st, 2015
GROUP 7: 64 INTERNATIONAL B
Putri Amandhari | Septania Wibowo |Tommy Lesmana |
Ummi Aliyah
In the flexible budget, laundry labor, supplies, water and maintenance are
categorized as the variable cost because the cost will change and relate to the
changes of the quantity. On the other hand, Salary and Allocate Admin costs are
categorized as fixed cost, because the quantities will not affect those cost, the cost
will be the same.

In conclusion, the management will know how much the changes of cost, which
happens because of the changing of the volume, so they can anticipate and calculate
the budget cost, so there will be no more over budget cost.
3. Compute the appropriate labor variances. What do they tell you?
Actual Hours
per Pounds
0.47

Standard Hours
per Pounds
0.48

Step 1
Actual Hours
= total pounds x actual hours
per pounds
= 156,600 x 0.47
= 73,602

Step 2
Actual Cost
= actual hours x actual rate
= 73,602 x 10.2
= 750,740.4

Actual Rate
per Pounds
$ 10.2

Standard Rate
per Pounds
$9

Step 3
Standard Cost of Actual
Hours
= actual hours x standard rate
= 73,602 x 9
= 662,418
Step 4
Labor Rate Variance
= actual cost standard cost of
actual hours

= 750,740.4 662,418
= 88,322.4

The Labor Variance indicates that the actual cost is higher than the standard
cost. This means the budget calculation less precise. It should have considered
the other factors, both internal and external.
4. What should Mr. Donaldson tell the administrator about his budget
variances?
First they are doing Variance Analysis, it seen than the gap between the actual
number and the baseline cost. More labor hours would create an unfavorable labor
efficiency variance, which could decrease your expected profit and yes, adverse
variance will reduce the business profit. There is variance in his budget because
there are changes of the quantity and also price of the supplies. He estimates that
the price will remain the same without consider the inflation and any other economic
condition. The other reason why there is variance in his budgeting, because he
wrongly estimate how long it takes to serve one customer. The estimation time is
shorter than the actual time. This makes the increase of the cost because of the
longer time needed to finish the job. Not only the time, but also the number of
customer who came to the shelter is more than estimated. This also made the
variance in his budgeting.

1) Changes in conditions: Considering the business is not only affected by


the internal condition but also external condition. They have to be sensitive
about what is happening in their surrondings that will direct or indirectly
impact their business.
2) The quality of management: Special care to reduce costs can result in
favorable variances. On the other hand, management carelessness can drive
up unfavorable variances. By maximizing and creating efficient time through
work hours could cut the excessed budget.
- mix a higher skilled direct labor workers nade nire efficient use of labor
hours
- employee training program improve effiecient use of time
- high quality materials resulted in fewer defective products and more
efficient use of time.
3) Flexible Budget Variance in the future. Implementing a flexible budget
varies to adjust for fluctuations or shifts in the volume of sales-related activity.
A flexible budget reflects multiple changes for various levels. Instead of static
forecasts, a flexible budget -- also referred to as a flex budget or variable
budget-- shows costs as a percentage of sales

REFERENCES
http://smallbusiness.chron.com/budget-variance-analysis-60250.html,
accessed May 5th 2015.
http://catalog.flatworldknowledge.com/bookhub/reader/4402?
e=heisinger_1.0-ch10_s05, accessed May 5th 2015.