CHAPTER 9 - FLEXIBLE BUDGETING AND PERFORMANCE ANALYSIS

PROBLEM 924 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 cant understand why those people upstairs complain so much about the reports.

For the last several years, the companys marketing department has chronically failed to meet the sales goals expressed in the companys monthly budgets.

Required:

The companys president is uneasy about the cost reports and would like you to evaluate their usefulness to the company. (2 Marks)

What changes, if any, should be made in the reports to give better insight into how well departmental supervisors are controlling costs? (1 Mark)

Prepare a new performance report for the quarter, incorporating any changes you suggested in question (2) above. (5 Marks)

How well were costs controlled in the Assembly Department in March? (2 Marks