CHAPTER 9 - FLEXIBLE BUDGETING AND PERFORMANCE ANALYSIS PROBLEM 9–24 Critiquing
ID: 2724504 • Letter: C
Question
CHAPTER 9 - FLEXIBLE BUDGETING AND PERFORMANCE ANALYSIS
PROBLEM 9–24 Critiquing a Variance Report; Preparing a Performance Report
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 typical departmental cost report for a recent period follows:
Assembly Department
Cost Report
For the Month Ended March 31
Actual Results
Planning Budget
Variances
Machine-hours .....
35,000
40,000
Variable costs:
Supplies .....
$29,700
$32,000
$2,300 F
Scrap .....
19,500
20,000
500 F
Indirect materials .....
51,800
56,000
4,200 F
Fixed costs:
Wages and salaries .....
79,200
80,000
800 F
Equipment depreciation .....
60,000
60,000
—
Total cost .....
$240,200
$248,000
$7,800 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:
Prepare a new performance report for the quarter, incorporating any changes you suggested in question (flexable budget)(2) above. (5 Marks)
How well were costs controlled in the Assembly Department in March? (2 Marks
Assembly Department
Cost Report
For the Month Ended March 31
Actual Results
Planning Budget
Variances
Machine-hours .....
35,000
40,000
Variable costs:
Supplies .....
$29,700
$32,000
$2,300 F
Scrap .....
19,500
20,000
500 F
Indirect materials .....
51,800
56,000
4,200 F
Fixed costs:
Wages and salaries .....
79,200
80,000
800 F
Equipment depreciation .....
60,000
60,000
—
Total cost .....
$240,200
$248,000
$7,800 F
Explanation / Answer
cost are incurred in an unefficient manner.
Assembly Department Cost Report For the Month Ended March 31 Actual Results Standard for Actual Planning Budget Variances Remarks Machine-hours ..... 35,000 35,000 40,000 Variable costs: Supplies ..... $ 29,700 $ 28,000 $ 32,000 $ -1,700 U Scrap ..... $ 19,500 $ 17,500 $ 20,000 $ -2,000 U Indirect materials ..... $ 51,800 $ 49,000 $ 56,000 $ -2,800 U Fixed costs: Wages and salaries ..... $ 79,200 $ 80,000 $ 80,000 $ 800 F Equipment depreciation ..... $ 60,000 $ 60,000 $ 60,000 $ - Total cost ..... $ 240,200 $ 234,500 $ 248,000 $ -5,700 U