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: eBook Assembly Department Cost Report For the Month Ended March 31 Actual Planning Results Budget Machine-hours 25,000 30,eee Variances Print References 7,200 $ 22,400 68,689 7,800 $ 600 F 24,000 1,600 F 79,500 10,980 F Variable costs: Supplies Scrap Indirect materials Fixed costs: Wages and salaries Equipment depreciation Total cost 69, 180 96,000 263,300 $ 66,000 3,100 u 96,888 273,300 $10,000 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

Answer 1

1)	cost reports are ineffective since budgeted costs at one level of
	activity are compared to acutal costs at another level of
	activity.
	cost reports show whether fixed costs are controlled and do not
	show whether variable costs are controlled
2)	flexible budget performance report should be used
3)	Flexible Budget Performance Report
			Actual	Spending variance		Flexible	Activity variance		Planning
			results			Budget			Budget
	Machine hours		25,000	0		25,000			30,000
	supplies		7,200	700	U	6500	1,300	F	7,800
	Scrap		22,400	2,400	U	20000	4,000	F	24,000
	indirect materials		68,600	2,350	U	66250	13,250	F	79,500
	Wages and salaries		69,100	3,100	U	66,000	0	N	66,000
	Equipment Depreciation		96,000	0	U	96,000	0	N	96,000
	total		263,300	8,550	U	254750	18,550	F	273,300
	(here wages & salaires and Equipment depreciation are fixed costs)
	Flexible budget = planning budget cost/30000*25000
4)	costs were not well controlled