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.

  

    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.

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.)

     

What kind of reports should be used to give better insight into how well departmental supervisors are controlling costs?

Complete the new performance report for the quarter, based on Flexible Budget Performance approach. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

  

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:

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. Flexible Budget Performance Report

4. Costs were not well controlled

Actual
Results Spending
Variances Flexible
Budget Activity
Variances Planning
Budget Machine-hours (q) 15000 15000 20000 Supplies $10200 $2100 U $8100 $2700 F $10800 Scrap 36400 7150 U 29250 9750 F 39000 Indirect materials 104600 11225 U 93375 31125 F 124500 Wages and salaries 81100 5100 U 76000 None 76000 Equipment depreciation 106000 None 106000 None 106000 Total $338300 $25575 U $312725 $43575 F $356300

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