Several years ago, Westmont Corporation developed a comprehensive budgeting syst

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 typical departmental cost report for a recent period follows: Assembly Department Cost Report For the Month Ended March 31 Actual Results Planning Budget Variances 70,000 75,000 Machine-hours Variable costs: Supplies Scrap indirect materials $ 43,600 45,000 $1,400 F 800 F 3,300 F 44,200 86,700 45,000 90,000 Fixed costs: Wages and salaries Equipment depreciation 91,150 72,000 92,000 72,000 850 F Total cost $ 337,650 $ 344,000 $6,350 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 ineffective since budgeted costs at one level of activity are compared to actual costs at another level of activity Cost reports show whether fixed costs are controlled and do not show whether variable costs are controlled Cost reports are effective since budgeted costs at one level of activity are compared to actual costs at another level of activity Cost reports show whether fixed costs and variable costs are controlled. ? El El

Explanation / Answer

Particulars Actual Spending variance Flexible budget Activity variance Static budget Machine hours 70000 70000 75000 Variable overhead cost Supplies 43600 1600 U 42000 3000 F 45000 Scrap 44200 2200 U 42000 3000 F 45000 Indirect material 86700 2700 U 84000 6000 F 90000 Fixed cost Wages and salaries 91150 850 F 92000 0 92000 Equipment depreciation 72000 0 72000 0 72000 Total cost 337650 5650 U 332000 -12000 U 344000

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