Frank Weston, supervisor of the Freemont Corporation\'s Machining Department, wa

Question

Frank Weston, supervisor of the Freemont Corporation's Machining Department, was visibly upset after being reprimanded for his department's poor performance over the prior month. The department's cost control report is given below: Freemont Corporation?Machining Department Cost Control Report For the Month Ended June 30 Planning Budget Actual Results Variances Machine-hours 33,700 36,700 Direct labor wages $77,510 $87,700 $10,190 U Supplies 16,850 23,600 6,750 U Maintenance 120,700 138,900 18,200 U Utilities 13,570 16,400 2,830 U Supervision 38,000 38,000 0 Depreciation 80,000 80,000 0 Total $346,630 $384,600 $37,970 U "I just can't understand all the red ink," Weston complained to the supervisor of another department. "When the boss called me in, I thought he was going to give me a pat on the back because I know for a fact that my department worked more efficiently last month than it has ever worked before. Instead, he tore me apart. I thought for a minute that it might be over the supplies that were stolen out of our warehouse last month. But they only amounted to a couple of hundred dollars, and just look at this report. Everything is unfavorable." Direct labor wages and supplies are variable costs; supervision and depreciation are fixed costs; and maintenance and utilities are mixed costs. The fixed component of the budgeted maintenance cost is $87,000; the fixed component of the budgeted utilities cost is $10,200. Required: Prepare a performance report that will help Mr. Weston's superiors assess how well costs were controlled in the Machining Department. (Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Omit the "$" sign in your response.) Freemont Corporation?Machining Department Flexible Budget Performance Report For the Month Ended June 30 Activity Variances Spending Variances Direct labor wages $6900 (Click to select)UNoneF $ (Click to select)FUNone Supplies 1500 (Click to select)NoneFU (Click to select)NoneUF Maintenance (Click to select)NoneUF (Click to select)FNoneU Utilities (Click to select)UNoneF (Click to select)NoneUF Supervision (Click to select)UNoneF (Click to select)NoneUF Depreciation (Click to select)UNoneF (Click to select)NoneUF Total $ (Click to select)FUNone $ (Click to select)UFNone

Explanation / Answer

Introducing several reports related to the Mission’s budget, Mr. Halbwachs said recent events in the Democratic Republic of the Congo had made the task of preparing the budget all the more difficult. A revised budget for the period 2003-2004, which took into consideration several developments, had been submitted following the Security Council’s expansion of MONUC’s mandate. Further changes to that mandate were expected, and a new budget would have to be submitted to the Assembly in the fall. In the meantime, an approved budget, with sufficient flexibility for the establishment of additional posts to meet the urgent and immediate requirements of the Mission’s reorganization, was needed. The United Nations Organization Mission in the Democratic Republic of the Congo (MONUC) was a difficult, complex and constantly evolving mission and, as such, required a flexible budget, Jean-Pierre Halbwachs, the United Nations Controller, told the Fifth Committee (Administrative and Budgetary) this morning, as it began consideration of that Mission’s financing. Turning to the budget for the United Nations Mission in Sierra Leone (UNAMSIL), Mr. Halbwachs said that Mission’s budget reflected a downsizing in accordance with Security Council resolution 1436 of 2002. Since the preparation of the budget, the Council had authorized a further reduction of troops from 13,500 to 11,500, resulting in a reduction of some $34 million to the proposed budget. While a revised budget was not being submitted, the amount had been conveyed to the Advisory Committee for its consideration. Also this morning, the Committee heard the introduction of several other reports, including the review of rates of reimbursement to the governments of troop-contributing States, the Peacekeeping Reserve Fund and the final write-off of contingent-owned equipment at liquidated missions. A report on the financial position of 10 closed peacekeeping missions, as well as reports on the disposition of assets for several closed missions, was also introduced. The Under-Secretary-General for Internal Oversight Services, Dileep Nair, introduced the report of the Office of Internal Oversight Services on the financial situation of the United Nations International Research and Training Institute for the Advancement of Women (INSTRAW). Participating in a brief discussion on organizational matters were the representatives of Morocco (on behalf of the “Group of 77” developing countries and China), Greece (on behalf of the European Union), the Dominican Republic and Venezuela. The Committee Chairman, Murari Raj Sharma (Nepal), and the Committee Secretary, Movses Abelian (Armenia), made brief statements during the discussion. The Committee will meet again at a date to be announced in the Journal. Background The Fifth Committee (Administrative and Budgetary) met this morning to continue its consideration of individual peacekeeping missions’ budgets and to take up several reports related to the administrative and budgetary aspects of peacekeeping financing. Since the initial budget had been completed, however, an addendum to the budget of MONUC has been elaborated (document A/57/683/Add.1), following the expansion of the Mission by the Council. As the mandate of MONUC was expanded, an additional $116.6 million has been proposed for the Mission. Further changes in the mandate of MONUC are likely, which would require the submission of a new budget in the fall during the main part of the fifty-eighth session. Therefore, for 2001/2002, it is proposed to offset the amount of $41 million against the unencumbered balance of $61.17 million. In this case, the resulting balance of $20.17 million should be credited to Member States. The Assembly is to make a decision on the treatment of this unencumbered balance, as well as other miscellaneous income and adjustments for the period ended 30 June 2002. Also before the Committee was a separate report on the status of airfield services contract to MONUC (document A/57/756), for the Assembly, in its resolutions 56/252 B of March 2002 and 56/252 C of June 2002, requested reports on the implementation of recommendations in connection with concerns expressed by the Advisory Committee on Administrative and Budgetary Questions (ACABQ) over awarding the contract to PAE/Daher over the lowest bidder. The contract, which was valid until 30 June 2002, was awarded for an amount not to exceed $34.22 million for one year. According to the document, the initial contract was subsequently extended until 31 March 2003. Negotiations with the contractor last November have resulted in a significant reduction of cost and released the Organization from any potential claims under the contract. In search of a new contract, efforts were made to ensure uninterrupted provision of services to MONUC. Together with a working group comprising representatives of the Department of Peacekeeping Operations (DPKO), the Office of Internal Oversight Services and the Office of Legal Affairs, MONUC has completed a comprehensive reassessment of its airfield service requirements. A troop contributors’ meeting was held to elicit offers for specialized military units capable of carrying out all or part of the required services. Some 86 potential troop contributors have been canvassed, and a market survey of potential local contractors was undertaken. Following an assessment of all options, a proposal by one bidder was considered superior to all others, both in cost and in substance. Also, a recommendation was finalized for the distribution of airfields between an international civilian contractor and military contingents. On 19 December, the case was submitted to the Headquarters Committee on Contracts, which unanimously recommended approval of the proposed award. The new contract was expected to take effect on 1 April. In the meantime, the ACABQ recommends that MONUC’s budget be maintained at its current level, namely, $582 million gross, and that the staffing table also be maintained at its current level, namely, 1,695 posts. It requests that all posts be fully justified in the new budget for 2003-2004 in terms of the new concept of operation, organizational structure and workload. In view of the developing situation, the Advisory Committee has decided not to submit its recommendations in the main part of its report, but to annex a number of significant observations in connection with the consideration of the new budget. The ACABQ recommends approval of the Secretary-General’s proposal to offset some $41 million unassessed during 2001-2002 period against the unspent balance of $61.2 million for the period ended 30 June 2002. It also recommends that the remaining balance of $20.2 million, as well as interest and other income and adjustments amounting to some $23 million, be credited to Member States in a manner to be determined by the Assembly. Regarding the financing of MONUC for the period from 1 July 2003 to 30 June 2004, the ACABQ recommends that the Assembly appropriate an amount of some $582 million gross (about $572.3 million net), and that that amount be assessed at a monthly rate of $48.5 million gross ($47.7 million net), pending the submission of a new budget for 2003-2004. As for the United Nations Mission in Sierra Leone (UNAMSIL) (document A/57/681), the proposed budget of $520.05 million represents a decrease of $149.4 million (22.3 per cent) due to the downsizing of the Mission in accordance with the drawdown plan endorsed by the Security Council and a higher number of mission staff recruited under appointments of limited duration. Regarding the Mission’s performance for 2001/2002 (document A/57/680), the Assembly needs to take a decision on a reduction in the appropriation provided for the maintenance of the Mission for the period ending on 30 June, from $717.6 million to $676.6 million, corresponding to the amount actually assessed on Member States. It is also necessary to decide on the treatment of the unutilized balance of $33.35 million based on that reduced appropriation and the treatment of other income/adjustments amounting to some $23.21 million. For the next financial period, the Advisory Committee recommends approval of the Secretary-General’s request for an appropriation of some $520.05 million. However, in view of the envisioned further reduction of the Mission, it is further recommended that the amount to be assessed, at this time, should not exceed $486 million gross. The Advisory Committee also notes that it has made some recommendations, which should lead to economies, and those should be reflected in the performance report. Also before the Committee was a report on field assets control system (document A/57/765), which outlines the progress achieved since the 2001 report on the matter, taking into consideration the comments made by the Advisory Committee and the Board of Auditors. Among other actions, the report describes the establishment of a help desk within the Communications and Information Technology Service of the Logistics Support Division to provide additional support to users and system administrators in a centralized, cost-effective manner. In response to the concerns expressed by the Board of Auditors, the administration has also taken steps to address the differences in the closing balances for the period ended 30 June 2001 and opening balances as at 1 July 2001.

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