Question

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 Results Planning Budget Variances Machine-hours 25,000 30,000 Variable costs: Supplies $ 7,800 $ 8,400 $ 600 F Scrap 25,200 27,000 1,800 F Indirect materials 75,800 88,500 12,700 F Fixed costs: Wages and salaries 71,500 68,000 3,500 U Equipment depreciation 98,000 98,000 – Total cost $ 278,300 $ 289,900 $ 11,600 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.

Answer 1

Step-by-step explanation:

Solution:

1.

These reports seems not be the correct tool to calculate the performance. These reports compared to the main performance against the budgeted / planned sales level and budget or standard are not adjusted for under achievement of sales. If sales are less then variable cost should also be incurred less and its not wise to compare the main cost for lower sale volumes against budgeted expenses against higher sales revenue.

2.

The budget figure or benchmark figures for the variable expenses should be adjusted for actual level of revenue and then actual expenses incurred should be compared and variance should be calculated

3.

Revised performance report: Planning Adjusted Actual Budget budget result Variance Machine hours 40000 35000 Variable cost: 32000 28000 29700 1700 (A) Supplies scrap 20000 17500 19500 2000 (A) Indirect