Question

Problem 9-25 Critiquing a Variance Report; Preparing a Performance Report (LO9-1, LO9-2, LO9-3, LO9- 4, LO9-6) Several years ago, Westmont Corporation developed a comprehensive budgeting system for planning and control purposes. While departmental supervisors have been happy with the system, the factory manager has expressed considerable dissatisfaction with the information being generated by the system A report for the company's Assembly Department for the month of March follows: Assembly Department Cost Report For the Month Ended March 31 Actual Planning Results Budget Variances Machine hours 15.000 20,000 $ 8,700 $ 9,300 $ 600 F 29,400 31,500 2,100 F 86,600 102,000 15,400 F Variable costs: Supplies Serap Indirect materials Tixed costs Wages and salaries Equipment depreciation Total cost 75,100 71,000 4,100 U 101,000 101,000 $300,000 $314,800 $14,000 F After receiving a copy of this cost report, the supervisor of the Assembly Department stated. These reports are super. It makes me feel really good to see how well things are going in my department. I can't understand why those people upstairs complain so much about the reports." For the last several years, the company's marketing department has chronically failed to meet the sales goals expressed in the company's monthly budgets. Required: 1. The company's president is uneasy about the cost reports, Identity at least two reasons 2. What kind of reports should be used to give better insight into how well departmental supervisors are controlling costs? 3. Complete the new performance report for the quarter based on Flexible Budget Performance approach 4. Were costs well controlled in March?

Answer 1

Solution 1:

The company president is uneasy about the cost report because:

a. Cost reports are ineffective since budgeted cost at one level of activity are compared to actual cost at another level of activity.

b. Cost report show whether fixed cost are controlled and do not show whether variable cost are controlled.

Solution 2:

Flexible budget performance report must be used to give better insight how well department supervisor controlling costs.

Solution 3:

Westmont Corporation
Assembly Department
Flexible Budget Performance Report
For the month ended March 31
Particulars	Actual results	Flexible Budget Variance		Flexible Budget	Activity Variance		Static Budget
Machine hours	15000			15000			20000
Supplies	$8,700.00	$1,725.00	U	$6,975.00	$2,325.00	F	$9,300.00
Scrap	$29,400.00	$5,775.00	U	$23,625.00	$7,875.00	F	$31,500.00
Indirect materials	$86,600.00	$10,100.00	U	$76,500.00	$25,500.00	F	$102,000.00
Wages and Salaries	$75,100.00	$4,100.00	U	$71,000.00	$0.00	None	$71,000.00
Equipment Depreciation	$101,000.00	$0.00	None	$101,000.00	$0.00	None	$101,000.00
Total	$300,800.00	$21,700.00	U	$279,100.00	$35,700.00	F	$314,800.00

Solution 4:

As flexible budget variance is unfavorable, therefore costs were not well controlled in assembly department.