P9-23 - Please explain how you arrived at your answers. Thank you! Problem 9-23
ID: 2416441 • Letter: P
Question
P9-23 - Please explain how you arrived at your answers. Thank you!
Problem 9-23 Critiquing a Variance Report; Preparing a Performance Report [LO1, LO4, LO6]
Several years ago, Shipley 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.
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.
The company’s president is uneasy about the cost reports, what can be the reason? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)
What kind of reports should be used to give better insight into how well departmental supervisors are controlling costs?
Complete a new performance report for the quarter, based on answer to (2) above. (Input all amounts as positive values. 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). Round your intermediate calculations to 2 decimal places and final answers to the nearest dollar amount. Omit the "$" sign in your response.)
Assembly Department
Performance Report
For the Month Ended March 31
Indirect materials
Problem 9-23 Critiquing a Variance Report; Preparing a Performance Report [LO1, LO4, LO6]
Several years ago, Shipley 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: Assembly DepartmentCost Report
For the Month Ended March 31 Planning
Budget Actual
Results Variances Machine-hours 32,000 27,000 Variable costs: Supplies $ 9,600 $ 9,000 $ 600 F Scrap 12,800 11,800 1,000 F Indirect materials 54,400 48,900 5,500 F Fixed costs: Wages and salaries 50,000 51,900 1,900 U Equipment depreciation 88,000 88,000 – Total cost $ 214,800 $ 209,600 $ 5,200 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.
Required: 1.The company’s president is uneasy about the cost reports, what can be the reason? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)
Cost reports are effective as budgeted costs at one level of activity is compared to actual costs at another level of activity Cost reports shows whether fixed costs and variable costs are controlled Cost reports shows whether fixed costs are controlled and do not show whether variable costs are controlled Cost reports are ineffective as budgeted costs at one level of activity is compared to actual costs at another level of activity 2.What kind of reports should be used to give better insight into how well departmental supervisors are controlling costs?
Fixed budget performance reports must be used Flexible budget performance reports must be used 3.Complete a new performance report for the quarter, based on answer to (2) above. (Input all amounts as positive values. 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). Round your intermediate calculations to 2 decimal places and final answers to the nearest dollar amount. Omit the "$" sign in your response.)
Assembly Department
Performance Report
For the Month Ended March 31
Indirect materials
(Click to select)FUNone (Click to select)NoneUF Wages and salaries (Click to select)UFNone (Click to select)FUNone Equipment depreciation (Click to select)UNoneF (Click to select)FNoneU Total $ (Click to select)UNoneF $ $ (Click to select)UFNoneExplanation / Answer
1
The company’s president is uneasy about the cost reports, what can be the reason?
Answer:
Cost reports should be prepared by comparing Flexible budget with Actual at same level of activity. The given cost report is comparing budget and actual at different level of activity.
Hence the answer shall be :
Cost reports are ineffective as budgeted costs at one level of activity is compared to actual costs at another level of activity
2
What kind of reports should be used to give better insight into how well departmental supervisors are controlling costs?
Answer:
As explained above, Flexible budget (at actual level of activity) should be compared with actual for better insight.
Hence answer shall be :
Flexible budget performance reports must be used
3
Assembly Department
Performance Report
For the Month Ended March 31
Planning
Budget
Flexible
Budget
Actual
Results
Activity Variances
Revenue and Spending Variances
A
B
C
A-B
B-C
Machine-hours
32000
27000
27000
Supplies
$ 9,600
$ 8,100
$ 9,000
$ 1,500
F
$ 900
U
(9600/32000)*27000
Scrap
$ 12,800
$ 10,800
$ 11,800
$ 2,000
F
$ 1,000
U
(12800/32000)*27000
Indirect materials
$ 54,400
$ 45,900
$ 48,900
$ 8,500
F
$ 3,000
U
(54400/32000)*27000
Wages and salaries
$ 50,000
$ 50,000
$ 51,900
$ -
None
$ 1,900
U
Equipment depreciation
$ 88,000
$ 88,000
$ 88,000
$ -
None
$ -
None
Total
$ 214,800
$ 202,800
$ 209,600
$ 12,000
F
$ 6,800
U
1
The company’s president is uneasy about the cost reports, what can be the reason?
Answer:
Cost reports should be prepared by comparing Flexible budget with Actual at same level of activity. The given cost report is comparing budget and actual at different level of activity.
Hence the answer shall be :
Cost reports are ineffective as budgeted costs at one level of activity is compared to actual costs at another level of activity
2
What kind of reports should be used to give better insight into how well departmental supervisors are controlling costs?
Answer:
As explained above, Flexible budget (at actual level of activity) should be compared with actual for better insight.
Hence answer shall be :
Flexible budget performance reports must be used
3
Assembly Department
Performance Report
For the Month Ended March 31
Planning
Budget
Flexible
Budget
Actual
Results
Activity Variances
Revenue and Spending Variances
A
B
C
A-B
B-C
Machine-hours
32000
27000
27000
Supplies
$ 9,600
$ 8,100
$ 9,000
$ 1,500
F
$ 900
U
(9600/32000)*27000
Scrap
$ 12,800
$ 10,800
$ 11,800
$ 2,000
F
$ 1,000
U
(12800/32000)*27000
Indirect materials
$ 54,400
$ 45,900
$ 48,900
$ 8,500
F
$ 3,000
U
(54400/32000)*27000
Wages and salaries
$ 50,000
$ 50,000
$ 51,900
$ -
None
$ 1,900
U
Equipment depreciation
$ 88,000
$ 88,000
$ 88,000
$ -
None
$ -
None
Total
$ 214,800
$ 202,800
$ 209,600
$ 12,000
F
$ 6,800
U
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