Question

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 25,000 30,000 Variances Machine-hours $ 5,700 $ 15,400 50,600 6,300 16,500 57,000 $ 600 F 1,100 F 6,400 F Variable costs: Supplies Scrap Indirect materials Fixed costs: Wages and salaries Equipment depreciation Total cost 2,100 U 63,100 61,000 91,000 91,000 $225,800 $231,800 $6,000 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.

Answer 1

1
Cost reports are ineffective as budgeted costs at one level of activity are compared to actual costs are another level of activity
Cost reports shows whether fixed costs are controlled and do not show whether variable costs are controlled.
2
	Actual results	Revenue and Spending variances		Flexible Budget	Activity variances		Planning Budget
Machine-hours(q)	25000			25000			30000
Supplies	5700	450	U	5250	1050	F	6300
Scrap	15400	1650	U	13750	2750	F	16500
Indirect materials	50600	3100	U	47500	9500	F	57000
Wages and salaries	63100	2100	U	61000	0	None	61000
Equipment Depreciation	91000	0	None	91000	0	None	91000
Total	225800	7300	U	218500	13300	F	231800