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Question: Several years ago, Westmont Corporation developed a comprehensive budgeting system for planning a...

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:

9,900

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 Department
Cost Report
For the Month Ended March 31 Actual Results Planning Budget Variances Machine-hours 15,000 20,000 Variable costs: Supplies $ 9,300 $

9,900

$ 600 F Scrap 32,200 34,500 2,300 F Indirect materials 93,800 111,000 17,200 F Fixed costs: Wages and salaries 77,500 73,000 4,500

U

Equipment depreciation 103,000 103,000 – Total cost $ 315,800 $ 331,400 $ 15,600 F

Explanation / Answer

1. The company’s president is uneasy about the cost reports, identify at least two reasons.

The company is not doing great because,

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

Each department should have utilization and efficiency report rather than gross values.

So they can work to reduce the wastage and increase the efficiency.

3. Complete the new performance report for the quarter, based on Flexible Budget Performance approach.

4. Were costs well controlled in March?

No the costs were not controlled as per the expectation ,As per budget the actual spend for 15000 man hours are equivalent to budgetlevel, hence in each case the spend is much higher.

Assembly Department Cost Report For the Month Ended March 31 Actual Results $ per machine hours Planning Budget $ per machine hours Variances Comment Machine-hours 15,000 20,000 Variable costs: Supplies $ 9,300 0.62 $ 9,900 0.50 $ 600 F unfavorable Scrap 32,200 2.15 34,500 1.73 2,300 F unfavorable Indirect materials 93,800 6.25 1,11,000 5.55 17,200 F unfavorable Fixed costs: unfavorable Wages and salaries 77,500 5.17 73,000 3.65 4,500 U unfavorable Equipment depreciation 1,03,000 6.87 1,03,000 5.15 – unfavorable Total cost $ 3,15,800 21.05 $ 3,31,400 16.57 $ 15,600 F unfavorable

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