Several years ago, Westmont Corporation developed acomprehensive budgeting system for planning and control purposes.While departmental supervisors have been happy with the system, thefactory manager has expressed considerable dissatisfaction with theinformation being generated by the system.

A typical departmental cost report for a recent periodfollows:

Assembly Department
Cost Report
For the Month Ended March 31
Actual Results Planning Budget Variances
Machine-hours 50,000 55,000
Variable costs:
Supplies $ 48,950 $ 52,250 $ 3,300 F
Scrap 32,400 33,000 600 F
Indirect materials 82,800 88,000 5,200 F
Fixed costs:
Wages and salaries 89,250 90,000 750 F
Equipment depreciation 70,000 70,000 –
Total cost $ 323,400 $ 333,250 $ 9,850 F

After receiving a copy of this cost report, the supervisor ofthe Assembly Department stated, “These reports are super. It makesme feel really good to see how well things are going in mydepartment. I can’t understand why those people upstairs complainso much about the reports.”

For the last several years, the company’s marketing departmenthas chronically failed to meet the sales goals expressed in thecompany’s monthly budgets.


1. The company’s president is uneasy about the cost reports,what can be the reason? (You may select more than oneanswer. Single click the box with the question mark to produce acheck mark for a correct answer and double click the box with thequestion mark to empty the box for a wrong answer.)

Cost reports are ineffective sincebudgeted costs at one level of activity are compared to actualcosts at another level of activity.
Cost reports show whether fixedcosts are controlled and do not show whether variable costs arecontrolled.
Cost reports are effective sincebudgeted costs at one level of activity are compared to actualcosts at another level of activity.
Cost reports show whether fixedcosts and variable costs are controlled.

2. What kind of reports should be used to give better insightinto how well departmental supervisors are controlling costs?

Flexible budget performance reportsmust be used
Fixed budget performance reportsmust be used

3. Complete the new performance report for the quarter, based onFlexible Budget Performance approach. (Indicate the effectof each variance by selecting "F" for favorable, "U" forunfavorable, and "None" for no effect (i.e., zero variance). Inputall amounts as positive values.)

4. Were costs well controlled in March?

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Sixta Kovacek
Sixta KovacekLv2
28 Sep 2019

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