Exhibit 1 Performance Report, May 2004 Budget Actual Variance Units 18,000 14,000 4,000 Sales $864,000 $686,000 $178,000 U Variable manufacturing costs: Direct material $108,000 $ 85,400 $ 22,600 Direct labor 288,000 246,000 42,000 Indirect labor 57,600 44,400 13,200 Idle time 14,400 14,200 200 Cleanup time 10,800 10,000 800 Miscellaneous supplies 5,200 4.000 1,200 Can nnnnnnn Total variable manufacturing cost $484,000 $404,000 $ 80,000 Variable shipping costs $ 28.800 $ 28.000 800 Total variable costs $512,800 $432,000 $ 80,800 Contribution margin $351,200 $254,000 $ 97,200 Nonvariable manufacturing costs: Supervision $ 57,600 58,800 $ 1,200 Rent 20,000 20,000 Depreciation 60,000 60,000 Other 10.400 10.400 Total nonvariable manufacturing costs $148,000 $149,200 $ 1,200 U Selling and administrative costs 112,000 112,000 Total nonvariable and programmed costs $260,000 $261.200 $ 1,200 CC Operating income (loss) 91,200 (7,200) (98,400)Waltham Motors Division When Sharon Michaels arrived at her office at Waltham Motors Division on June 4, 2004, she was pleased to find the monthly performance report for May on her desk. Her job as division controller was to analyze results of operations each month and to prepare a narrative report on operations that was to be forwarded to the corporate headquarters of Marco Corporation. Waltham Motors was a wholly owned subsidiary of Marco. The atmosphere at the division had been one of apprehensiveness throughout the month of May, and today would provide a chance to find out how well division management had compensated for the recent loss of a major customer contract. The Current Situation Waltham Motors manufactured electric motors of a single design that were sold to household appliance manufacturers. Originally a family-owned business, the division had been acquired in late 2003 by the Marco Corporation. Few changes had been made in either the company's operating procedures or systems because Marco's management had chosen to delay changing procedures and systems until it was able to observe how well those already in use at Waltham functioned. In April, Sharon Michaels, who had earned a master's degree in business administration in 2002, was transferred from the corporate headquarters controller's office to Waltham Motors. She was joined in late May by David Marshall, also from Marco, who was to be the new division manager. Because of the lost contract, Michaels had asked the plant accountant to assemble the May figures as quickly as possible, but she was amazed that they were ready so soon. At headquarters, monthly results had rarely been available until several days after the end of each month. Even though the plant accountant had promised Sharon that he would be able to prepare the report in a single dayWaltham Motors Division When Sharon Michaels arrived at her office at Waltham Motors Division on June 4, 2004, she was pleased to find the monthly performance report for May on her desk. Her job as division controller was to analyze results of operations each month and to prepare a narrative report on operations that was to be forwarded to the corporate headquarters of Marco Corporation. Waltham Motors was a wholly owned subsidiary of Marco. The atmosphere at the division had been one of apprehensiveness throughout the month of May, and today would provide a chance to find out how well division management had compensated for the recent loss of a major customer contract. The Current Situation Waltham Motors manufactured electric motors of a single design that were sold to household appliance manufacturers. Originally a family-owned business, the division had been acquired in late 2003 by the Marco Corporation. Few changes had been made in either the company's operating procedures or systems because Marco's management had chosen to delay changing procedures and systems until it was able to observe how well those already in use at Waltham functioned. In April, Sharon Michaels, who had earned a master's degree in business administration in 2002, was transferred from the corporate headquarters controller's office to Waltham Motors. She was joined in late May by David Marshall, also from Marco, who was to be the new division manager. Because of the lost contract, Michaels had asked the plant accountant to assemble the May figures as quickly as possible, but she was amazed that they were ready so soon. At headquarters, monthly results had rarely been available until several days after the end of each month. Even though the plant accountant had promised Sharon that he would be able to prepare the report in a single day with some overtime work, she was surprised that he had been able to do so.A glance at the performance report confirmed Michaels's worst fears. Instead of a budgeted profit of $91,200, the report showed the division had lost $7,200 in May. Even allowing for the lost volume, she had expected a better showing than indicated by the performance report. The plant accountant had attached the following memo to the report: June 3, 11:00 P.M. Sharon: As promised, here is the performance report for May. (I told you smaller is better; we'll show headquarters how efficient our plant accounting department is!) I am sure you'll find the bottom line as disappointing as I did, but plant performance really looks good, and the crews there may deserve our compliments. Note how they are at or under budget on every single cost except for supervision. I suspect that the unfavorable variance in supervision was caused directly by the work involved in controlling other costs. Because I worked late, I am taking a day off tomorrow. The other data you requested are as follows: 1. There were no beginning and ending inventories in work in progress or finished goods. 2. Per unit standard costs used in budgeting this year were: Direct material $6 Direct labor 16 3. We are still using two hours per unit as standard labor time. 4. Actual material prices have been 5% less than expected. 5. Actual direct labor costs have been $8.20 per hour due to the increase in medical benefits granted last January. A copy of the performance report is shown as Exhibit 1. Questions 1. Using budget data, how many motors would have to be sold for Waltham Motors Division toA glance at the performance report confirmed Michaels's worst fears. Instead of a budgeted profit of $91,200, the report showed the division had lost $7,200 in May. Even allowing for the lost volume, she had expected a better showing than indicated by the performance report. The plant accountant had attached the following memo to the report: June 3, 11:00 P.M. Sharon: As promised, here is the performance report for May. (I told you smaller is better; we'll show headquarters how efficient our plant accounting department is!) I am sure you'll find the bottom line as disappointing as I did, but plant performance really looks good, and the crews there may deserve our compliments. Note how they are at or under budget on every single cost except for supervision. I suspect that the unfavorable variance in supervision was caused directly by the work involved in controlling other costs. Because I worked late, I am taking a day off tomorrow. The other data you requested are as follows: 1. There were no beginning and ending inventories in work in progress or finished goods. 2. Per unit standard costs used in budgeting this year were: Direct material $6 Direct labor 16 3. We are still using two hours per unit as standard labor time. 4. Actual material prices have been 5% less than expected. 5. Actual direct labor costs have been $8.20 per hour due to the increase in medical benefits granted last January. A copy of the performance report is shown as Exhibit 1. Questions 1. Using budget data, how many motors would have to be sold for Waltham Motors Division toExhibit 1 Performance Report, May 2004 Budget Actual Variance Units 18,000 14,000 4,000 Sales $864,000 $686,000 $178,000 U Variable manufacturing costs: Direct material $108,000 $ 85,400 $ 22,600 Direct labor 288,000 246,000 42,000 Indirect labor 57,600 44,400 13,200 Idle time 14,400 14,200 200 Cleanup time 10,800 10,000 800 Miscellaneous supplies 5,200 4.000 1,200 Can nnnnnnn Total variable manufacturing cost $484,000 $404,000 $ 80,000 Variable shipping costs $ 28.800 $ 28.000 800 Total variable costs $512,800 $432,000 $ 80,800 Contribution margin $351,200 $254,000 $ 97,200 Nonvariable manufacturing costs: Supervision $ 57,600 58,800 $ 1,200 Rent 20,000 20,000 Depreciation 60,000 60,000 Other 10.400 10.400 Total nonvariable manufacturing costs $148,000 $149,200 $ 1,200 U Selling and administrative costs 112,000 112,000 Total nonvariable and programmed costs $260,000 $261.200 $ 1,200 CC Operating income (loss) 91,200 (7,200) (98,400)