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:

Assembly Department Cost Report For the Month Ended March 31
	Actual Results		Planning Budget		Variances
Machine-hours		15,000		20,000
Variable costs:
Supplies	$	8,700	$	9,300	$	600	F
Scrap		29,400		31,500		2,100	F
Indirect materials		86,600		102,000		15,400	F
Fixed costs:
Wages and salaries		75,100		71,000		4,100	U
Equipment depreciation		101,000		101,000		–
Total cost	$	300,800	$	314,800	$	14,000	F

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?

The company’s president is uneasy about the cost reports, identify at least two reasons. (Select "X" if the item is one of the reasons.)

Cost reports are ineffective since budgeted costs at one level of activity are compared to actual costs at another level of activity. Cost reports show whether fixed costs are controlled and do not show whether variable costs are controlled. Cost reports are effective since budgeted costs at one level of activity are compared to actual costs at another level of activity. Cost reports show whether fixed costs and variable costs are controlled.

What changes, if any, should be made in the reports to give better insight into how well departmental supervisors are controlling costs?

	Flexible budget performance reports must be usedradio button unchecked1 of 2 Fixed budget performance reports must be used

prepare a new performance report for the quarter, (Do not round your intermediate calculations. 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.)

	Westmont Corporation Assembly Department Flexible Budget Performance Report For the Month Ended March 31 Actual Results Flexible Budget Planning Budget Machine-hours (q) 15,000 20,000 Supplies $8,700 $9,300 Scrap 29,400 31,500 Indirect materials 86,600 102,000 Wages and salaries 75,100 71,000 Equipment depreciation 101,000 101,000 Total $300,800 $314,800

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

	Costs were well controlledradio button unchecked1 of 2 Costs were not well controlledradio button unchecked2 of 2

Answer 1

1	Cost reports are ineffective since budgeted costs at one level of activity are compared to actual costs at another level of activity.
	Cost reports show whether fixed costs and variable costs are controlled.
2	Flexible budget performance reports must be usedradio button unchecked1 of 2
3
	Westmont Corporation
	Assembly Department
	Flexible Budget Performance Report
	For the Month Ended March 31
		Actual Results	Flexible Budget	Planning Budget		Per unit
	Machine-hours (q)	15,000	15000	20,000
	Variable
	Supplies	$8,700	$6,975.00	$9,300	U	$0.47
	Scrap	29,400	$23,625.00	31,500	U	$1.58
	Indirect materials	86,600	$76,500.00	102,000	U	$5.10
	Fixed
	Wages and salaries	75,100	71000	71,000	U
	Equipment depreciation	101,000	101000	101,000	-
	Total	$300,800	$279,100.00	$314,800
4	Costs were not well controlled