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 Machine-hours 15,000 20,000 Variances $ 9,300 $ 9,900 $ 600 F 32,200 34,500 2,300 F 93,800 111,000 17,200 F Variable costs: Supplies Scrap Indirect materials Fixed costs: Wages and salaries Equipment depreciation Total cost 77,500 73,000 4,500 U 103,000 103,000 $315,800 $331,400 $15,600 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

several years ago westmont develop Reasons: pel To cost reports show whether fixed cost are controlled land do not show weates variable cost one controlled cost reports are level of activity level of activity. in effective since budgeted costs at one are compared to actual cost at anot leoa 2 Flexible budget Performance reports must be used 209-3 westmont Corporation. Assembly Department Flexible Budget performance Report for the month ended maioch 31 Actual spending Flexible Activity Results variance Budget Variance 15000 15000 Planning Budget 20,000 machine Hours (a) & supplies SCOOP 9300 indideer mat 32 200 93800 1875 U $ 7425 2475 FA 9900 6325 P25875 8625 F 34500 10550 o 83250 27750 F 1 11,000 4500 o 73000 None 73000 None 103000 None 1103000 123250 0 $292550 8885 oF 331400 -1090 g solarie, 77,500 103000 $ 3,15800 fauip Pep costs were well controlled