Problem 1-4: Performance Reports: below is a performance report that compares budgeted and actual profit in the sporting goods department of Maxwell's department store for the month of December.
Maxwell's department store
Sporting Goods
Performance Report
December 2008
Budget Actual Difference
Sales $600, 000 $675,000 $75,000
Less:
Cost of merchandise $300,000 $375,000 $75,000
Salaries of sales staff $60,000 $68,000 $8,000
Controllable profit $240,000 $232,000 $8,000
Required:
1. Evaluate the department in terms of its increases in sales and expenses. Do you believe it would be useful to investigate either or both of the increase in expenses?
Problem 1-5. Performance report: At the end of 2008. Cyril Fedako, CFO for Fedako products, received a report comparing budgeted and actual production costs for the company's plant in forest lake, Minnesota:
Manufacturing costs
Forest lake plant
Budget versus actual 2008
Budget Actual Difference
Materials $3,000,000 $3,300,000 $300,000
Direct labor 2,100,000 2,300,000 200,000
Supervisory salaries 375,000 400,000 25,000
Utilities 75,000 85,000 25,000
Machine maintenance 250,000 280,000 10,000
Depreciation of building 50,000 50,000 -0-
Depreciation of equipment 200,000 205,000 5,000
Janitorial 120,000 135,000 15,000
Total $6,170,000 6,755,000 585,000
His first thought was that costs must be out of control since actual costs exceed the budget by $585,000. However, he quickly recalled that the budget was set assuming a production level of $50,000 units. The forest lake plant actually produced $55,000 units in 2008.
Required:
1. Given that production was greater than planned, should Cyril expect that all actual costs will be greater than budgeted? Which costs would you expect to increase, and which costs would you expect to remain relatively constant?