Glenwood Controls Division
When Eleanor Brooks arrived at her office at Glenwood Controls Division on June 1, 2015, she was pleased to find the monthly performance report for May on her desk. Glenwood Controls Division was a wholly owned subsidiary of Roberts Corporation. As division controller, her job was to analyze results of operations each month and issue report to both Glenwood's senior management team and to Robertscorporate headquarters. The atmosphere at Glenwood had been tense throughout the month of May, so Brooks' review would provide important information on how well division management had compensated for the recent loss of major customer contract.
The Current Situation
Glenwood Controls manufactured single mechanical control device sold to household and commercial appliance manufacturers. Glenwood Controls was family-owned business that had been acquired in late 2014 by Roberts Corporation. After the acquisition, few changes had been made in Glenwood's operating procedures or systems; however, recently Roberts had decided to move some key managers to Glenwood to increase communication and synergy between the division and corporate headquarters.
In April, 2015, Eleanor Brooks, who had received her MBA 2013, was transferred from corporate headquarters to Glenwood; she was joined soon thereafter by Daniel Haskell, also from Roberts, who joined Glenwood as the new division manager.
Because of the lost contract, Brooks asked the plant accountant to assemble the May figures as quickly as possible. She was amazed that the report was ready so soon. At headquarters, monthly results had rarely been available until several days after the end of each month. Even though the plant accountant had promised Brooks that he would be able to prepare the report in single day with some overtime work, she was surprised that he had been able to do so.
Glenwood had prepared budget for 2015 based on estimated sales and production costs. Because sales were not subject to seasonable fluctuations, the monthly budget was merely one-twelfth of the annual budget. No adjustments were made to the May budget when the contract was lost in April
The Performance Report
A glance at the performance report confirmed Brooks' worst fears. Instead of budgeted profit of $91,200, Glenwood had lost $7,200 in May. Even allowing for the lost volume, she had expected a better showing. The plant accountant had attached the following memo to the report:
TO: Eleanor Brooks, Glenwood Controller
FROM: Plant Accountant
DATE:
As promised, here is the May Performance Report. (I told you smaller is better; we'll show Roberts how efficient our plant accounting department is!) am sure you'll find the bottom line as disappointing as I did, but plant performance really looks good, and the crews there may deserve our compliments. Note how they are at or under budget on every single cost item except for supervision. suspect that the unfavorable variance in supervision was caused directly by the work involved in controlling other costs.
Because worked late, won't be in the office tomorrow. The other data that you requested are as follows:
1. There was no beginning or ending inventories in work In progress or finished goods.
2. Per unit standard costs used in budgeting this year were:
Direct materials $6
Direct labor       16
3. We are still using hours per unit as standard labor time
4. Actual material prices have been 5% less than expected
5. Actual direct labor costs have been $8 20 per hour due to the increase in medical benefits granted last January.
The May Performance Report is shown in Exhibit 1.
Questions
1. Using master budget data, how many controls would have to be sold for Glenwood Controls Division to break even?
2. Compare the break even volume to current volume. Why Glenwood losing money in May? What are possible explanations?
3. Using the master budget data, create flexible budget and calculate the flexible budget variances.
4. Which variances, if any, should be brought to management's attention?
5. Create standard cost card and corresponding actual results table for May. Hint: Derive the actual quantity value by dividing actual cost by actual price.
6. Using the information in##, break down the direct material and direct labor flexible budget variances into price and quantity variances.
7. What's the story here? What recommendations would you make to Glenwood Controls Division to improve their future performance?
Exhibit 1. Performance Report, May, 2015
                                    Master Budget    Actual Results    Variance
Unit Volume                         18,000                14,000             4,000
Sales Revenue                   $864,000             $686,000       $178,000 U
Variable Mfg. Costs
DM                                     $108,000             $ 85,400          $22,600 F
DL                                        288,000                246,000          42,000 F
Indirect labor                         57,600                   44,400          13,200 F
Idle time                               14,400                   14,200             200 F
Cleanup time                         10,800                   10,000             800 F
Misc. supplies                         5,200                      4,000          1,200 F
Total Var. Mfg. Costs          $484,000             $404,000       $80,000 F
Variable Shipping Costs       $28,800                $28,000             $800 F
Total Variable Costs          $512,800                432,000       $80,800 F
Contribution Margin          $351,200             $254,000          $97,200 U
Fixed Mfg. Costs
Supervision                         $57,600                58,800          $1,200 U
Rent                                     20,000                20,000                --
Depreciation                         60,000                   60,000                --
Other                                     10,400                   10,400                --
Total Fixed Mfg. Costs       $148,000                149,200          $1,200 U
SG&A                                  112,000                112,000                -
Total Fixed Costs                $260,000                261,200          $1,200 U
Net Operating Income          $91,200                ($7,200)       ($98,400) U

Glenwood Controls Division When Eleanor Brooks arrived at her offi...