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 report for the company's Assembly Department for the month of March follows: Assembly Department Cost Report For the Month Ended March 31 Actual Planning Results Budget Variances Machine-hours 15,000 20,000 Variable costs: Supplies $ 9,900 $ 10,500 $ 600 F Scrap 35,000 37,500 2,500 F Indirect materials 101,000 120,000 19,000 F Fixed costs: Wages and salaries 79,900 75,000 4,900 U Equipment depreciation 105,000 105,000 Total cost $330,800 $348,000 $17,200 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 can't understand why those people upstairs complain so much about the reports." For the last several years, the company's marketing department has chronically failed to meet the sales goals expressed in the company's monthly budgets. Required: 1. The company's president is uneasy about the cost reports, identify at least two reasons. 2. What kind of reports should be used to give better insight into how well departmental supervisors are controlling costs? 3. Complete the new performance report for the quarter, based on Flexible Budget Performance approach. 4. Were costs well controlled in March? Required 1 Required 2 Required 3 Required 4 The company's president is uneasy about the cost reports, identify at least two reasons. (Select "X" if the item is one of the reasons.) Cost reports are ineffective since budgeted costs at one level of activity are compared to actual costs at another level of activity. Cost reports show whether fixed costs are controlled and do not show whether variable costs are controlled. Cost reports are effective since budgeted costs at one level of activity are compared to actual costs at another level of activity. Cost reports show whether fixed costs and variable costs are controlled. Complete the new performance report for the quarter, based on Flexible Budget Performance approach. (Do not round your intermediate calculations. 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.) Westmont Corporation Assembly Department Flexible Budget Performance Report For the Month Ended March 31 Flexible Budget Actual Results Planning Budget 20,000 Machine-hours (9) 15,000 Supplies Scrap Indirect materials Wages and salaries Equipment depreciation Total $ 9,900 35,000 101,000 79,900 105,000 $ 330,800 S 10,500 37,500 120,000 75,000 105,000 $ 348,000
