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 ResultsPlanning BudgetVariances
Machine-hours 35,000 40,000
Variable costs:
Supplies$29,700$32,000$2,300F
Scrap 19,500 20,000 500F
Indirect materials 51,800 56,000 4,200F
Fixed costs:
Wages and salaries 79,200 80,000 800F
Equipment depreciation 60,000 60,000 –
Total cost$240,200$248,000$7,800F
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?