Several years ago, Westmont Corporation developed a comprehensive budgeting syst
ID: 2590761 • Letter: S
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:
10,500
U
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?
Assembly DepartmentCost Report
For the Month Ended March 31 Actual Results Planning Budget Variances Machine-hours 15,000 20,000 Variable costs: Supplies $ 9,900 $
10,500
$ 600 F Scrap 35,000 37,500 2,500 F Indirect materials 101,000 120,000 19,000 F Fixed costs: Wages and salaries 79,900 75,000 4,900U
Equipment depreciation 105,000 105,000 – Total cost $ 330,800 $ 348,000 $ 17,200 FExplanation / Answer
Assembly Department
Cost Report
For the Month Ended March 31
Actual Results
Planning Budget
Variances
Flexed
Budget
Actual
Variances
Machine-hours
15,000
20,000
15000
Variable costs:
Supplies
$
9,900
$
10,500
$
600
F
7,875
2025
U
Scrap
35,000
37,500
2,500
F
28,125
6875
U
Indirect materials
101,000
120,000
19,000
F
90,000
11000
U
Fixed costs:
Wages and salaries
79,900
75,000
4,900
U
75,000
4900
U
Equipment depreciation
105,000
105,000
–
105,000
Total cost
$
330,800
$
348,000
$
17,200
F
306,000
24800
U
1)
The actual variances have to be compiled based on the ‘flexed budget’
Comparing actual costs with flexed budget it has an unfavourable variance overall amounting to $ 24800
Thus costs have risen and sales are poor, therefore the company is not doing well
2)
The reports should be in detail. As it is there is only an assumption that these costs are linked to ‘hours’ that the operations run. It is not necessarily so. Especially in the case of ‘Supplies’ or ‘Scrap’ it is linked to number of units produced.
Therefore there should be more details as Price of materials, quantity of materials used, Direct wages and hours worked and hours idle,
3)
See table
4)
Costs were way above budget ( 8% adverse) and supervisors should be accountable for the unfavourable figures
Assembly Department
Cost Report
For the Month Ended March 31
Actual Results
Planning Budget
Variances
Flexed
Budget
Actual
Variances
Machine-hours
15,000
20,000
15000
Variable costs:
Supplies
$
9,900
$
10,500
$
600
F
7,875
2025
U
Scrap
35,000
37,500
2,500
F
28,125
6875
U
Indirect materials
101,000
120,000
19,000
F
90,000
11000
U
Fixed costs:
Wages and salaries
79,900
75,000
4,900
U
75,000
4900
U
Equipment depreciation
105,000
105,000
–
105,000
Total cost
$
330,800
$
348,000
$
17,200
F
306,000
24800
U
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