Bill Morgan is the manager of the sales department of Rise & Shine Company, which sells deluxe bread makers. At the beginning of each month, Bill estimates the total cost of operating the department for the month. At the end of the month he compares the total estimated costs to the total actual costs to determine the “difference.” If the difference is “small,” he doesn’t investigate any further because he prefers to spend his time on “more important” issues.

At the beginning of April, Bill estimated that the total operating costs of the sales department would be $60,500. For April, the actual operating costs were $60,400. At the end of April, Bill says “The sales department is doing pretty well. We came in $100 under budget for the month.”

Alice Hoch, the president of the company, has come to you for help. She says “I am concerned that we are not doing enough analysis of our costs, and | need your help. Start with the sales department and prepare for me a ‘cost report’ to help me review the costs for April. You can have whatever information you need.”

Upon investigation, you find the sales department was expected to sell 500 units

(bread makers) in April. Based on these projected sales, its budgeted fixed costs were as follows: advertising, $18,000 and salaries, $25,000, while its budgeted variable costs were

$25 commission per unit sold and $10 delivery cost per unit sold. You determine that, during April, 500 units were sold and the sales department spent $19,300 for advertising and $22,600 for salaries. It also paid the $25 commission per unit sold and paid $6,000 for delivering the 500 units.

Required: Write a report to the president that

(a) includes a cost report for the sales department that compares the budgeted costs to the actual costs for April, (b)

identifies the questions you think the president should ask to analyze any differences you find, and

(c) suggests some potential answers to the questions.  lp85