Several years ago, Westmont Corporation developed a comprehensive budgeting syst

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 15,000 20,000 Variances Machine-hours Variable costs: Supplies Scrap Indirect materials Fixed costs: Wages and salaries Equipment depreciation Total cost 11,100 11,700 600 F 40,600 43,500 2,900 F 115,400 138,000 22,600 F 84,700 79,000 5,700 U 109,000 109,000 $360,800 $381,200 $20,400 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?

Explanation / Answer

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)Assembly Department Cost Report For the Month Ended March 31 Actual Results Spending Variances Flexible Budget Activity Variances Planning Budget Calculation for F. Budget Machine-hours 15000 15000 20000 Variable costs: Supplies 11100 2325 U 8775 2,925 F 11,700 (11700/20000)*15000 Scrap 40600 7975 U 32625 10,875 F 43,500 (43500/20000)*15000 Indirect materials 115400 11900 U 103500 34,500 F 1,38,000 (138000/20000)*15000 Fixed costs:     Wages and salaries 84700 5,700 U 79,000 0 None 79,000 Equipment depreciation 109000 0 None 1,09,000 0 None 1,09,000   Total cost 3,60,800 27,900 U 3,32,900 48,300 F 3,81,200

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