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 Repor

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?