4. How well were costs controlled in the Assembly Department in March? data for

Question

4. How well were costs controlled in the Assembly Department in March?

data for part 3

F

U

F

U

Scrap

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After receiving a copy of the following cost report, the supervisor of the Assembly Department stated, "These reports are super. It makes me feel 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. Assembly Department         Cost Report For the Month Ended March 31 Static Planning Actual Favorable Budget Results Variances Unfavorable Machine hours 40,000 35,000 Variable Costs: Supplies $32,000 $29,700 $2,300 F Scrap 20,000 19,500 500 F Indirect Materials 56,000 51,800 4,200 F Fixed Costs: Wages & Salaries 80,000 79,200 800 F Equipment Depreciation 60,000 60,000     - Total Cost $248,000 $240,200 $7,800 Required: 1. The company's president is uneasy about the cost reports and would like you to evaluate their       usefulness to the company. Are the reports useful? List your reasons as to why or why not.   2. What changes, if any, should be made in the reports to give a better insight into how well       department supervisors are controlling costs? 3. Prepare a new performance report for the quarter, incorporating any changes you suggested in       question 2 above.

4. How well were costs controlled in the Assembly Department in March?

data for part 3

Static Planning Activity variance

F

U

Flexible budget Spending variance

F

U

Actual results MAchine hours Supplies

Scrap

Indirect Materials Wages and salaries Equipment Depreciation Total 0 0 0 0 0

Fill in

Explanation / Answer

Ans 1 The reports are not useful as there is straight way comparison of static budget and actual. This wont give us true picture of the performance as for example in this case the standard machine hours is 40000 as compare to actual hours which is 35000. So the total standard cost will be ofcourse more as the cost per hour is multipled by no. of units that is 40000 as compare to 36000 hours.

Ans 2 The changes that should be made is to add two more coloumns of flexible budget. Flexible budget is a budget which adjust itself with the actual units produced or catual no. of hours etc. It is calculated bt multipliying standard cost to actual production. So this will give the real picture of performance. As it would give neck to neck comparison of all expenses, as the base is actual.

Ans 3

Cost Performance Report For the Month Ended March 31 Planning   Budget   Flexible Budget Actual Results    Machine Hours 40,000 35,000 Variable Cost Supplies 32,000 28000.00 29,700 Scrap 20,000 17500.00 19,500 Indirect material 56,000 49000.00 51,800 Fixed Cost Wages and salaries $80,000 80000.00 $79,200 Equipment Depreciation 60,000 60000.00 60,000 Total expenses $248,000 $234,500 $240,200

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