Task: Critiquing a Variance Report:
Several years ago, Westmont 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:
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Assembly Department
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Cost Report
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For the month ended March 31
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Planning Budget
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Actual Results
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Variances
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Machine-hours
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40,000
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35,000
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Variable costs:
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Supplies
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$ 32,000
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$ 29,700
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$ 2,300
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F
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Scrap
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20,000
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19,500
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500
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F
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Indirect materials
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56,000
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51,800
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4,200
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F
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Fixed costs:
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Wages and salaries
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80,000
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79,200
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800
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F
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Equipment depreciation
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60,000
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60,000
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-
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F
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Total cost
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$248,000
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$240,200
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$7,800
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F
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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 the following questions:
• The company’s president is uneasy about the cost reports and would like you to evaluate their usefulness to the company.
• What changes, if any, should be made in the reports to give better insight into how well departmental supervisors are controlling costs?
• Prepare a new performance report for the quarter, incorporating any charges you suggested in question (b) above.
• How well were costs controlled in the Assembly Department in March?