Question

Problem 9-25 Critiquing a Variance Report; Preparing a Performance Report (L09-1, LO9-2, L09-3, LO9- 4, LO9-6] 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 Planning Results Budget 15,000 20,000 Variances Machine-hours $ 9,000 $ 9,600 30,800 33,000 90,200 106,500 $ 600 F 2,200 F 16,300 F Variable costs: Supplies Scrap Indirect materials Fixed costs: Wages and salaries Equipment depreciation Total cost 4,300 U 76,300 72,000 102,000 102,000 $ 308,300 $323,100 $14,800 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 E.company's. manthly..budaiets..

Answer 1

Answer to Requirement 1:

Cost reports are ineffective since budgeted costs at one level of activity are compared to actual costs to another level of activity.
Cost reports show whether fixed costs and variable costs are controlled.

Answer to Requirement 2:

Flexible budget performance reports must be used.

Answer to Requirement 3:

Westmont Corporation Assembly Department Flexible Budget Performance Report For the Month Ended March 31 Actual Flexible Spending Variance Results Budget 15000 15000 Activity Variance Planning Budget 20000 Machine-hours (9) Supplies ($0.48*() Scrap ($1.65*9) Indirect materials ($5.325*q) Wages and salaries ($72,000) Equipment depreciation ($102,000) Total expenses 9000 30800 90200 76300 102000 308300 1800 6050 10325 4300 7200 24750 79875 72000 102000 285825 2400 8250 26625 None None 37275F 9600 33000 106500 72000 102000 323100 None 22475

Answer to Requirement 4:

Costs were not well controlled.