Several years ago, Shipley Corporation developed a comprehensive budgeting system for profit 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
	Planning Budget		Actual Results		Variances
Machine-hours		20,000		15,000
Variable costs:
Supplies	$	9,600	$	9,000	$	600	F
Scrap		33,000		30,800		2,200	F
Indirect materials		106,500		90,200		16,300	F
Fixed costs:
Wages and salaries		72,000		76,300		4,300	U
Equipment depreciation		102,000		102,000
Total cost	$	323,100	$	308,300	$	14,800	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:

1.

The companys president is uneasy about the cost reports, what can be the reason? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)

X	Cost reports are ineffective as budgeted costs at one level of activity is compared to actual costs at another level of activity
X	Cost reports shows whether fixed costs are controlled and do not show whether variable costs are controlled
	Cost reports are effective as budgeted costs at one level of activity is compared to actual costs at another level of activity
	Cost reports shows whether fixed costs and variable costs are controlled

2.

What kind of reports should be used to give better insight into how well departmental supervisors are controlling costs?

X	Flexible budget performance reports must be used
	Fixed budget performance reports must be used

3.	Complete the new performance report for the quarter, based on Flexible Budget Performance approach.(Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

4.

Were costs well controlled in March?

	Costs were well controlled
	Costs were not well controlled