Question

Managerial Accounting Help!

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 Montl March 31 Planning Budget 20,000 Actual Variances Results Machine-hours 15,000 Variable costs: Supplies Scrap Indirect materials $11,400 12,000 $ 42,000 119,000 600 F 45,000 142,500 3,000 F 23,500 F Fixed costs: Wages and salaries Equipment depreciation 85,900 110,000 5,900 U 80,000 000 Total cost $368,300 $389,500 $21,200 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? Complete this question by entering your answers in the tabs below. Required 1 Required 4 Required 2 Required 3 prepare a new performance report for the quarter, (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.) Westmont Corporation Assembly Department Flexible Budget Performance Report For the Month Ended March 31 Flexible Actual Planning Budget Results Budget Machine-hours (g) 15,000 20,000 S S Supplies 11,400 12,000 U Scrap 42,000 45,000 Indirect materials U 119,000 142,500 None U Wages and salaries 85,900 80,000 Equipment depreciation None None 110,000 110,000 Total $ 389,500 368,300 Required 2 Required 4 >

Answer 1

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As per format provided, it seems only part 3 is required, although options in drop down for part 1,2 and 4 are not given, Solution: Still, I have answered all parts :) Cost reports are ineffective since budgeted costs at one levelof activity are compared to actual costs at another level ofactivity 1)a. b. Cost reports show whether fixed costs and variable costs are controlled. 2) Flexible budget performance reports must be used. 3) Flexible Budget Performance Report Spending Variance Activitiy Variance Budget Flexi Budget Variance Particulars F/U F/U Actual Variance Machine hours 15000 15000 20000 Supplies (12000/20000) 15000 Scrap Indirect Material (142500/20000) 15000 Wages and Salaries Equipment Depreciation $ 12,000 $ 45,000 11,400 2,400 42,000 $8,250 9,000 3,000 33,750 $11,250 106875 35,625 80,000 $ U F (45000/20000) 15000 F 119000 $ 12,125 F 142500 $ 85,900 $ 5,900 $80,000 None 110000 S 110000 S None None 110000 339625 $ 49,875 Total 368300 28,675 U F 389500 Activity/efficiency variance is happening between Budgeted and Flexible column. Spending variance is happening between Actual and Flexible budget Note: Calculation of Flexible budget numbers is shown in Particular column. 4) Cost were not well controlled Because, there is huge spending variance.