Several years ago, Shipley Corporation developed a comprehensive budgeting syste

Question

Several years ago, Shipley Corporation developed a comprehensive budgeting system for profit planning and control purposes. While departmental supervisors have been happy with the system, the factory manager has expressed considerable dissatisfaction with the information bein A typical departmental cost report for a recent period follows g generated by the system Assembly Department Cost Report For the Month Ended March 31 Planning Actual Budget ResultsVariances 31,000 26,000 Machine-hours Variable costs: $ 12,400 $ 11,800 S 600 F Supplies Scrap Indirect materials 12,400 11,400 1,000 F 55,800 50,300 5,500 F Fixed costs: Wages and salaries Equipment depreciatio 60,000 61,900 1,900 U 91,000 91,000 Total cost $231,600 $226,400 $5,200 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 goals expressed in the company's monthly budgets Required For the last several years, the company's marketing department has chronically failed to meet the sales 1. The company's president is uneasy about the cost reports, what can be the reason? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.) Cost reports shows whether fixed costs are controlled and do not show whether variable costs are controlled Cost reports are ineffective as budgeted costs at one level of activity is compared to actual costs at another level of activity Cost reports are effective as budgeted costs at one level of activity is compared to actual costs at another level of activity Cost reports shows whether fixed costs and variable costs are controlled

Explanation / Answer

1) The reason is:

"Cost reports are ineffective as budgeted costs are at the one level of activity is compared to the actual costs at another level of activity."

2) Flexible budget performance reports must be used.

3) New Performance report for the quarter:

4: The costs were not well controlled in the Assembly Department in march.

Flexible budget Actual Activity Variance F/U Budget Revenue and spending Budget F/U Machine Hours 26000 26000 Supplies 10400 11800 1400 U 12400 600 F Scrap 10400 11400 1000 U 12400 1000 F Indirect materials 46800 50300 3500 U 55800 5500 F Wages and Salaries 60000 61900 1900 U 60000 1900 U Equipment Depreciation 91000 91000 0 91000 0 Total 218600 226400 7800 U 231600 5200 F

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