Problem 9-24 Critiquing a Variance Report; Preparing a Performance Report [LO9-1

Question

Problem 9-24 Critiquing a Variance Report; Preparing a Performance Report [LO9-1, LO9-4, LO9-6] 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 typical departmental cost report for a recent period follows Assembly Department Cost Report For the Month Ended March 31 Actual Planning Results Budget Variances 15,000 20,000 Machine-hours Variable costs Supplies Scrap Indirect materials $9,300 $ 9,900 $ 600 F 32,200 34,500 2,300 F 93,800 111,000 17,200 F Fixed costs Wages and salaries Equipment depreciation 77,500 73,000 4,500 U 103,000 103,000 Total cost $ 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

Explanation / Answer

Answer:

1) Below are the correct answer's:

a) Cost reports are ineffective since budgeted costs at one level of activity are compared with actual cost at another level of activry.

b)Cost reports shows whether fixed costs are controlled and do not show whether variable costs are controlled.

2)

Flexible budget performance should be used, as it compares the cost at same level of activity.

3)

4) Costs were not well controlled. As we see that the spending variance is way high unfavorable.

(Actual Vs Flexible) (Flexible Vs Planning) Actual Results Spending variances F/U Flexible Budget Activity Variances F/U Planning budget Machine Hours 15000 15000 5000 20000 Variable Costs: Supplies 9300 1875 U 7425 2475 F 9900 Scraps 32200 6325 U 25875 8625 F 34500 Indirect Materials 93800 10550 U 83250 27750 F 111000 Fixed Costs: Wages and Salaries 77500 4500 U 73000 73000 Equipment depreciation 103000 0 103000 103000 315800 23250 U 292550 38850 F 331400

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