Question

HELP WITH REQUIREMENT 3

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 Results Planning Budget Variances Machine-hours 15,000 20,000 Variable costs: Supplies $ 8,700 $ 9,300 $ 600 F Scrap 29,400 31,500 2,100 F Indirect materials 86,600 102,000 15,400 F Fixed costs: Wages and salaries 75,100 71,000 4,100 U Equipment depreciation 101,000 101,000 – Total cost $ 300,800 $ 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, identify 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

1) Cost reports are ineffective since budgeted costs at one level of activity are compared to actual costs

at another level of activity.

2) Flexible Budget performance reports must be used

3) Cost Report

Particulrs	Actual	Spending Variances	Flexible Budget	Activity Variances	Planning Budget
Machine Hours	15000		15000		20000
Variable Cost :-
Supplies	8700	1725 U	6975	2325 F	9300
Scrap	29400	5775 U	23625	7875 F	31500
Indirect Materials	86600	10100 U	76500	25500 F	102000
Fixed Costs:-
Wages and Salaries	75100	4100 U	71000	-	71000
Equipment Depreciation	101000	-	101000	-	101000
Total Cost	300800	21700 U	279100	35700 F	314800

Calculation of Flexible Budget of :-

Supplies = ($9300/20000)*15000 = $6975

Scrap = ($31500/20000)*15000 = $23625

Indirect Materials = ($102000/20000)*15000 = $76500