MINI-CASEFlexible budgeting, performance measurement, and ethics:Branson Manufacturing, Inc.,...

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MINI-CASEFlexible budgeting, performance measurement, and ethics:Branson Manufacturing, Inc., produces a single type of small motor. The bookkeeper who does not have an in-depth understanding of accounting principles prepared the following performance report with the help of the production manager. In a conversation with the sales manager, the production manager was overheard saying, ‘‘You sales guys really messed up our Mayperformance, and it is only because production did such a great job controlling costs that we aren’t in even worse shape.’’Required:1. Do you agree with the production manager that the manufacturing area did a good job of controlling costs?2. Prepare a flexible budget for Branson Manufacturing’s expenses at the following activity levels: 45,000 units, 50,000 units, and 55,000 units.3. Prepare a revised performance report, using the most appropriate flexible budget from (2) above.4. Now what is your response to the production manager’s claim?5. Assume that you have just been hired as the new accountant. You observe that the production manager is about to receive a large bonus based on the favorable materials, labor, and factory overhead variances indicated in the flexible budget prepared by the bookkeeper. Using the IMA Statement of ethical Professional Practice as your guide, what standards, if any, apply to your responsibilities in this matter?

David · Accepted Answer

Title 
MINI-CASE Flexible budgeting, performance measurement, and ethics: Branson Manufacturing, Inc., 
produces a single type of small motor. The bookkeeper 
Description 
MINI-CASE 
Flexible budgeting, performance measurement, and ethics: 
Branson Manufacturing, Inc., produces a single type of small motor. The bookkeeper who does not 
have an in-depth understanding of accounting principles prepared the following performance report 
with the help of the production manager. In a conversation with the sales manager, the production 
manager was overheard saying, ‘‘You sales guys really messed up our May performance, and it is 
only because production did such a great job controlling costs that we aren’t in even worse shape.’’ 
Required: 
1. Do you agree with the production manager that the manufacturing area did a good job of 
controlling costs?
I don’t agree with the claim of production Manager that the manufacturing area did a good 
job of controlling the costs. When we make flexible budget by flexing the production units to 
actual values and compare the performance at equitable level, the variances of production 
department (expenses related with production department are unfavourable and reflects 
poor performance of production department.
May 2011                                    Flexible Budget                Actual                   variance 
Units                                              45000                                 45000 
Sales                                              1,125,000                        1,125,000                 0 
Less variable expenses 
Direct Materials                          202,500                                212,500                10000 (U) 
Direct Labour                               168,750                                175,750                  7,000(U) 
Variable factory OH                     101,250                               110,250                   9,000(U) 
Variable Selling & Admin expr    67,500                                  70,500                   3,000(U) 
Total variable expenses              540,000                                 569,000                 29000(U)
Contribution Margin                    585,000                                 556,000                29,000 (U) 
Less Fixed expenses  
Fixed factory OH expenses         100,000                                      95,000                5000 (F) 
Fixed selling & Admin expenses 150,000                                   160,000                 10,000(U) 
Total Fixed expenses           250,000                                  255,000                    5,000(U) 
Income from operations              335,000                                   301,000                    34,000(U)
2.

MINI-CASE Flexible budgeting, performance measurement, and ethics: Branson Manufacturing, Inc., produces a single type of small motor. The bookkeeper who does not have an in-depth understanding of...

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