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	$	10,200	$	10,800	$	600	F
Scrap		36,400		39,000		2,600	F
Indirect materials		104,600		124,500		19,900	F
Fixed costs:
Wages and salaries		81,100		76,000		5,100	U
Equipment depreciation		106,000		106,000		–
Total cost	$	338,300	$	356,300	$	18,000	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?

Answer 1