When Christina Jacobs arrived at her office at Osiek Motors on June 3, she was pleased to find the monthly performance report on her desk. Christinas job as division controller was to analyze results of operations each month and to prepare a narrative report on monthly results which she would send to McCaddenEnterprises, Osieks parent company. Osiek Motors was a wholly owned subsidiary of McCadden. The atmosphere at Osiek had been anxious throughout the month of May. Today would provide the opportunity to find out how well Osieks management had responded to the recent loss of a major customer contract.

Osiek Motors manufactured small electric motors which were sold to household appliance manufacturers. What started as a small, family-owned business had grown to become a major player in the industry. It was at this point that McCadden came in with an offer that the Osiek family could not refuse. After the sale of Osiek closed, few changes had been made by McCaddenin either processes or staff, as they wanted to see how well the business functioned before making any changes.

Three months after the sale, Christina Jacobs, who had earned her B.S. in Accounting transferred from McCaddens headquarters controllers office to Osiek Motors. She was joined soon after by Savannah Turner, also from McCadden, to be the new general manager at Osiek.

Disaster struck soon after. A major appliance maker, and long-time Osiek customer, had cancelled their contract at the end of April and moved production to Southeast Asia.

Because of the lost contract, and the potential negative financial impact, Christina had asked the plant chief accountant, Bart Christopher, to prepare the monthly performance report for Mayas soon as possible. She was amazed that the report had been prepared so quickly. Back at headquarters it had taken at least a week to receive the monthly reports. Even though Bart had promised that he could prepare the report in a single day with some overtime, she was surprised that he had done so.

Osiek had prepared their planning budget for 202x based on estimated sales and production expenses. Because sales were not seasonal, the monthly budget was simply 1/12 of the annual planning budget.

No adjustments had been made to the planning budget when the contract had been lost in April.

A glance at the monthly performance report for May confirmed Christinas worst fears. Instead of the budgeted operating profit of $91,200, Osiek had lost $7,200 in May. Even with the impact of the lost contract, Christina had expected a better result.

The original performance report is shown in the Excel file that accompanies this case.

The following is a reproduction of Barts memo to Christina that was attached to the report:

06/02/202x

11:30pm

To: Christina Jacobs

From: Bart Christopher

Subject: May 202x Monthly Performance Report

As promised, here is the performance report for May. Im sure you will find the bottom line disappointing, but plant performance is excellent! Note that the plant is favorable against budget for every cost category except supervision, and supervision is higher only because the other costs were controlled!

Because I worked late, Im taking tomorrow off. I have a 9:00am tee time, so I will not be available for any phone calls or questions.

Here is the additional data you requested:

1. Budgeted costs per unit are $6 for Direct Material and $16 for Direct Labor, $4.89 for Other Variable Mfg. Costs and $1.60 for Variable Shipping costs.

2. Actual selling price per unit is $49 versus planning budget of $48.

\begin{tabular}{|c|c|c|c|c|c|c|} \hline \multicolumn{2}{|c|}{ Revised Performance Report - Textbook Format } & \multirow{2}{*}{\begin{tabular}{c} (c-e) \\ Revenue \& Spending \end{tabular}} & & \multirow{2}{*}{\begin{tabular}{c} (e-g) \\ Activity \end{tabular}} & & \multirow{2}{*}{\begin{tabular}{l} Budget \\ Cost Per \end{tabular}} \\ \hline For the Month of May, 202x & & & & & & \\ \hline & Actual & Variances & Flex Budget & Variances & Planning Budget & Unit \\ \hline Units & 14,000 & & 14,000 & & 18,000 & NA \\ \hline Selling Price per Unit & $49 & & $48 & & $48 & NA \\ \hline Sales & 686,000 & & 672,000 & & 864,000 & NA \\ \hline \multicolumn{7}{|l|}{ Variable Mfg Costs: } \\ \hline Direct Material & 85,400 & & 84,000 & & 108,000 & 6 \\ \hline Direct Labor & 246,000 & & & & 288,000 & 16 \\ \hline Other Variable Mfg & 72,600 & & & & 88,000 & 4.89 \\ \hline Total Variable Mfg Costs & 404,000 & & & & 484,000 & 26.89 \\ \hline & & & & & & \\ \hline \multicolumn{7}{|l|}{ Variable Shipping Costs: } \\ \hline Total Variable Shipping Costs & 28,000 & & & & 28,800 & 1.6 \\ \hline & & & & & & \\ \hline Total Variable Costs & 432,000 & & & & 512,800 & 28.49 \\ \hline & & & & & & \\ \hline Contribution Margin & 254,000 & & & & 351,200 & \\ \hline Contribution Margin per Unit & 18.143 & & & & 19.511 & \\ \hline Total Fixed Costs & 261,200 & & & & 260,000 & \\ \hline Total Costs & 693,200 & & & & 772,800 & \\ \hline Operating Income(Loss) & 7,200 & & & & 91,200 & NA \\ \hline & & & & & & \\ \hline Total Cost per Unit & 49.514 & & & & 42.933 & \\ \hline & & & & & & \\ \hline Break Even Units & & & & & & \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|c|} \hline Osiek Motors & & & & ) \\ \hline \multicolumn{5}{|l|}{ Monthly Performance Report } \\ \hline \multirow[t]{2}{*}{ For the Month of May, 202x } & Planning & & & \\ \hline & Budget & Actual & Variance & \\ \hline Units & 18,000 & 14,000 & 4,000 & \\ \hline Sales & 864,000 & 686,000 & 178,000 & \\ \hline \multicolumn{5}{|l|}{ Variable Mfg Costs: } \\ \hline Direct Material & 108,000 & 85,400 & 22,600 & \\ \hline Direct Labor & 288,000 & 246,000 & 42,000 & \\ \hline Other Variable Mfg & 88,000 & 72,600 & 15,400 & \\ \hline Total Var Mfg Costs & 484,000 & 404,000 & 80,000 & \\ \hline \multicolumn{5}{|l|}{ Variable Shipping Costs: } \\ \hline \multirow[t]{2}{*}{ Total Var Ship Costs } & 28,800 & 28,000 & 800 & \\ \hline & & & 0 & \\ \hline Total Variable Costs & 512,800 & 432,000 & 80,800 & \\ \hline Contribution Margin & 351,200 & 254,000 & 97,200 & \\ \hline Total Fixed Costs & 260,000 & 261,200 & 1,200 & \\ \hline Operating Income(Loss) & 91,200 & 7,200 & 98,400 & \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|c|c|c|} \hline \multicolumn{2}{|c|}{ Revised Performance Report - Textbook Format } & \multirow{2}{*}{\begin{tabular}{c} (c-e) \\ Revenue \& Spending \end{tabular}} & & \multirow{2}{*}{\begin{tabular}{c} (e-g) \\ Activity \end{tabular}} & & \multirow{2}{*}{\begin{tabular}{l} Budget \\ Cost Per \end{tabular}} \\ \hline For the Month of May, 202x & & & & & & \\ \hline & Actual & Variances & Flex Budget & Variances & Planning Budget & Unit \\ \hline Units & 14,000 & & 14,000 & & 18,000 & NA \\ \hline Selling Price per Unit & $49 & & $48 & & $48 & NA \\ \hline Sales & 686,000 & & 672,000 & & 864,000 & NA \\ \hline \multicolumn{7}{|l|}{ Variable Mfg Costs: } \\ \hline Direct Material & 85,400 & & 84,000 & & 108,000 & 6 \\ \hline Direct Labor & 246,000 & & & & 288,000 & 16 \\ \hline Other Variable Mfg & 72,600 & & & & 88,000 & 4.89 \\ \hline Total Variable Mfg Costs & 404,000 & & & & 484,000 & 26.89 \\ \hline & & & & & & \\ \hline \multicolumn{7}{|l|}{ Variable Shipping Costs: } \\ \hline Total Variable Shipping Costs & 28,000 & & & & 28,800 & 1.6 \\ \hline & & & & & & \\ \hline Total Variable Costs & 432,000 & & & & 512,800 & 28.49 \\ \hline & & & & & & \\ \hline Contribution Margin & 254,000 & & & & 351,200 & \\ \hline Contribution Margin per Unit & 18.143 & & & & 19.511 & \\ \hline Total Fixed Costs & 261,200 & & & & 260,000 & \\ \hline Total Costs & 693,200 & & & & 772,800 & \\ \hline Operating Income(Loss) & 7,200 & & & & 91,200 & NA \\ \hline & & & & & & \\ \hline Total Cost per Unit & 49.514 & & & & 42.933 & \\ \hline & & & & & & \\ \hline Break Even Units & & & & & & \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|c|} \hline Osiek Motors & & & & ) \\ \hline \multicolumn{5}{|l|}{ Monthly Performance Report } \\ \hline \multirow[t]{2}{*}{ For the Month of May, 202x } & Planning & & & \\ \hline & Budget & Actual & Variance & \\ \hline Units & 18,000 & 14,000 & 4,000 & \\ \hline Sales & 864,000 & 686,000 & 178,000 & \\ \hline \multicolumn{5}{|l|}{ Variable Mfg Costs: } \\ \hline Direct Material & 108,000 & 85,400 & 22,600 & \\ \hline Direct Labor & 288,000 & 246,000 & 42,000 & \\ \hline Other Variable Mfg & 88,000 & 72,600 & 15,400 & \\ \hline Total Var Mfg Costs & 484,000 & 404,000 & 80,000 & \\ \hline \multicolumn{5}{|l|}{ Variable Shipping Costs: } \\ \hline \multirow[t]{2}{*}{ Total Var Ship Costs } & 28,800 & 28,000 & 800 & \\ \hline & & & 0 & \\ \hline Total Variable Costs & 512,800 & 432,000 & 80,800 & \\ \hline Contribution Margin & 351,200 & 254,000 & 97,200 & \\ \hline Total Fixed Costs & 260,000 & 261,200 & 1,200 & \\ \hline Operating Income(Loss) & 91,200 & 7,200 & 98,400 & \\ \hline \end{tabular}