Question

Several years ago, Westmont Corporation developed a comprehensive budgeting system for planning and control purposes. While...

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 25,000 30,000
Variable costs:
Supplies $ 6,600 $

7,200

$ 600 F
Scrap 19,600 21,000 1,400 F
Indirect materials 61,400 70,500 9,100 F
Fixed costs:
Wages and salaries 66,700 64,000 2,700

U

Equipment depreciation 94,000 94,000
Total cost $ 248,300 $ 256,700 $ 8,400 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.

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.

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

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

select one
Flexible budget performance reports must be usedradio button unchecked1 of 2
Fixed budget performance reports must be usedradio button unchecked2 of 2

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

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) 25,000 30,000
Supplies $6,600 $7,200
Scrap 19,600 21,000
Indirect materials 61,400 70,500
Wages and salaries 66,700 64,000
Equipment depreciation 94,000 94,000
Total $248,300 $256,700

4. Were costs well controlled in March?

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

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

Homework Answers

Answer #1

Answer 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.

Answer 2.

Flexible budget performance reports must be used.

Answer 3.

Answer 4.

Costs were not well controlled.

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