Reference no: EM13889829

Reuse Products, LLC, manufactures plastic beverage bottles. The division that man- ufactures 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. For the month, the master budget for a plant and the actual operating results of the two North American plants, North and South, follow.

Cost Category (Variable Unit Cost)	Master Budget	north Actual	south Actual
Center costs:
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.