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		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

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.