P 6-3: Ice Storm In March, a devastating ice storm struck Monroe County, New York, causing millions of dollars Page 249 of damage. Mathews & Peat (M&P), a large horticultural nursery, was hit hard. As a result of the 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 compared with budget: Revenues Less MATHEWS & PEAT Summary of Operating Results for the Current Year ($000s) Actual Results Budgeted Results Actual as % of Budget $32,149 $31,682 101% 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 expenses $30,579 $29,566 103% Operating profits $ 1,570 $ 2,116 74% Includes property taxes, insurance, maintenance, and utilities. After thinking about how to present the performance of M&P for the year, Dye decides to break out the costs 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 materials 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: Revenues Less MATHEWS & PEAT Summary of Operating Results for the Current Year ($000s) Actual Results Budgeted Results Actual as % of Budget $32,149 $31,682 101% Labor 12,832 12,621 102 Materials 8,411 8,139 103 Occupancy costs 4.121 4,236 97 Depreciation 2.687 2,675 100 Interest 1,875 1,895 99 Total expenses 29,926 29.566 101% Operating profits before ice storm costs Ice storm costs 2,223 2,116 105% 653 0 Operating profits after ice storm costs $ 1,570 $ 2,116 74% Required: a. Put yourself in Dye's position and write a short, concise cover memo for the second operating statement summarizing the essential points you want to communicate to your superiors. b. Critically evaluate the differences between the two performance reports as presented. Page 250