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 kind of reports should be used 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

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

Were costs well controlled in March?

	Costs were well controlled Costs were not well controlled

Answer 1

Solution 1:

The company president is uneasy about the cost report because:

a. Cost reports are ineffective since budgeted cost at one level of activity are compared to actual cost at another level of activity.

b. Cost report show whether fixed cost are controlled and do not show whether variable cost are controlled.

Solution 2:

Flexible budget performance report must be used to give better insight how well department supervisor controlling costs.

Solution 3:

Solution 4:

As flexible budget variance is unfavorable, therefore costs were not well controlled in assembly department.