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. A typical departmental cost report for a recent period follows:

  

    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.)

Cost reports show whether fixed costs and variable costs are controlled.

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.)

Assembly Department
Cost Report
For the Month Ended March 31 Actual Results Planning Budget Variances   Machine-hours 25,000   30,000     Variable costs:      Supplies $ 7,200    $ 7,800 $ 600   F      Scrap 22,400    24,000 1,600   F      Indirect materials 68,600    79,500 10,900 F   Fixed costs:          Wages and salaries 69,100    66,000 3,100   U      Equipment depreciation 96,000    96,000 –     Total cost $ 263,300    $ 273,300   $ 10,000 F

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. Performance report

4. No, costs were not controlled in March.

Actual
Results Standard
Data Variances Machine-hours 25000 25000 Variable costs: Supplies $7200 $6500 $700 U Scrap 22400 20000 2400 U Indirect materials 68600 66250 2350 U Fixed costs: Wages and salaries 69100 66000 3100 U Equipment depreciation 96000 96000 None Total cost $263300 $254750 $8550 U

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