Question
In March, a devastating ice storm struck Monroe County, New York, causing millions of dollars of damage. Mathews & Peat (M&P), a large horticultural nursey,
In March, a devastating ice storm struck Monroe County, New York, causing millions of dollars of damage. Mathews & Peat (M&P), a large horticultural nursey, was hit hard. As a result of hte storm, $653,000 of additional labor and maintenance costs were incurred to clean up the nursery, remove and replace damaged plants, repair fencing, and replace glass broken when nearby tree limbs fell on some of the greenhouses. Mathews & Peat is a wholly owned subsidiary of Agro Inc., an international agricultural conglomerate. The manager of Mathews & Peat, R. Dye, is reviewing the operating performance of the subsidiary for the year. here are the results for the year as ompared with buget: Mathews & Peat Summary of Operating Results for the Current Year ($000s) Actual Budgeted Actual as Resutls Results % of Budget Revenues $32,149 $31,682 101% Less Labor 13,152 12,621 104 Materials 8,631 8,139 106 Occupancy costs* 4,234 4,236 100 Depreciation 2,687 2,675 100 Interest 1,875 1,895 99 Total $30,579 $29,566 103% Operating profits $1,570 $ 2,116 74% *Includes property taxes, utilities, maintenance and repairs of building, and so on. After thinking about how to present the performanc of M&P for the year, Dye decides to break out the cost of the ice storm from the individual items affected by it and report the storm separately. The total cost of the ice storm, $653,000, consists of additional labor costs of $320,000, additional matrials of $220,000 and additional occupancy costs of $113,000. These amounts are net of the insurance payments received due to the storm. The alternative performance statement follows: Matthews & Peat Summary of Operating results for the current year ($000s) Actual Budgeted Actual as Results Results % of Budget Revenues $32,149 $31,682 101% Less Labor 12,832 12,621 102 Materials 8,411 8,139 103 Occupancy costs 4,121 4,236 97 Depreciation costs 2,687 2,675 100 Interest 1,875 1,895 99 Total expenses $29,926 $29,566 101% Operating profits before ice storm costs 2,223 2,116 105% Ice storm cost 653 0 Operating profits after ice storm cost $1,570 $2,116 74%
A. What would Dye' s boss should write in a cover memo for the second operating statement summarizing the essential points he want to communicate to his superiors. b. Critically evaluate the differences between the two performance reports as presented.
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