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Performance Report: comparing budget and actual profit

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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
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

A. 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?
B. Consider storewide electricity cost. Would this cost be a controllable or noncontrollable cost for the manager sporting goods? Would it be useful to include a share of storewide electricity cost on the performance report for sporting goods?

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.


A. 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?
B. Cyril is extremely busy-the company has six other plants. Therefore, he cannot spend time investigation every department from the budget. With this in mind, which costs should Cyril concentrate on his investigation of budget differences?

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The solution explains how to prepare a performance report using flexible budget

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