Evaluating a companywide performance report. Explanations included would be help
ID: 2396026 • Letter: E
Question
Evaluating a companywide performance report.
Explanations included would be helpful.
." Evaluating a Companywide Performance Report Mr. Chandler, the production supervisor, bursts into your office, carrying the company's 2014 per it. I will formance report and thundering, "There is villainy here, sir! And I shall get to the bottom of not stop searching until I have found the answer! Why is Mr. Richards so down on my thought we did a good job last year. But Richards claims my production people and I cost the c 531,500! I plead with you, sir explain this performance report to me." Trying tocalm?handler, take the report from him and ask to be left alone for 15 minutes. The report is as follows: company you DICKENS COMPANY, LIMITED Performance Report For Year 2014 Actual Budget Variance 7.500 5000 Sales. Less manufacturing costs 8,000 U 55,500 350 8,000 U 47,500 Direct materials. Direct labor 15,500 U 48,000 40,000 32,000* (143,500) (12.000) (31,500) U 6,000 F 119,000 113,000 Less selling and administrative expenses Selling (all fixed) Administrative (all fixed) 57.800 40,000 17,800 U 55,000 50,000 5,000 U . (112,800) 90,000) (22,800) Net income.... Performance summary Budgeted net income. Sales department variances $23,000 17,800 U $19,700 F 5,000 U 31,500 U variances 16,800 U 6.200 Actual net income. Includes fixed manufacturing overhead of $22,000. equired a. Evaluate the performance report. Is Mr. Richards correct, or is there "villainy here" b. Assume that the Sales Department is a profit center and that the Production and Administration Departments are cost centers. Determine the responsibility of each for cost, revenue, and income variances, and prepare a report reconciling budgeted and actual net income. Your report should focus on the performance of each responsibility center.Explanation / Answer
As shown below , we need to compare the actual results with a flexible budget instead of the planning budget, which is privided, as the actual unit sales is diferent from the planning budget.
1. Actually the production department has performed very well with direct material and direct labor have come down when compared to the flexible budget and are showing 'favourable variances'. The manufacturing overhead has go up by $3,000 which needs to be analysed. Overall the production department is giving a Favourable variance of $13,500.
2. The real problem is with the sales and the fixed expenses.
a. In the case of sales, the sales realisation per unit has come dwon from $45.00 to $35.00 thereby resulting in
unfavorable variance of $75,000 ($10.00*7,500).
b. The fixed expenses have gone up by $22,800, of which the selling expenses is contributing $17,800.
Hence in the final analysis the operations in the sales department are to be examined and responsibility to be fixed.
Dickens Company Limited Flexible Budget Performance Report For the year 2014 Planning Budget Activity Variances Flexible Budget Revenue and spending variances Actual Results Unit Sales 5000 7500 7500 Sales 225000 112500 F 337500 75000 U 262500 Expenses: Less: Manufacturing Costs Direct material 47500 23750 U 71250 15750 F 55500 Direct labor 32500 16250 U 48750 750 F 48000 Manufacturing Overheads 32000 5000 U 37000 3000 U 40000 Total 112000 45000 U 157000 13500 F 143500 Gross Profit 113000 67500 F 180500 61500 U 119000 Less: Selling and administrative expenses Selling (all fixed) 40000 0 40000 17800 U 57800 Administrative (all fixed) 50000 0 50000 5000 U 55000 Total 90000 0 90000 22800 U 112800 Net income 23000 67500 F 90500 84300 U 6200 Budget Planning Flexible Unit Sales 5000 7500 Total per unit Sales 225000 45.00 337500 Direct material 47500 9.50 71250 Direct labor 32500 6.50 48750 Manufacturing overhead Variable 10000 2.00 15000 Fixed 22000 22000 Total 32000 37000Related Questions
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