When every financial aspect of the cost control report is unfavorable, then t he management of Wichita manufacturing facility has to undertake certain measures to ensure that its operations come back to favorable condition s . In this case, the administration worked but never achieved its targeted output, leading to the actual outcomes of the company’s operations being higher than the targeted amounts . Likewise , although the company had initiated a budgeted cost of service to guide it, it failed to achieve this. The company incurred more expenses on all its activities and earned less revenue. In case such a scenario occurs for an organization, then the immediate action that should be take n is to review the budgeted cost controls so that they reflect the actual capacity of the company. This is the exact action that Kempers should take to restore the operations of the enterprise back to a favorable status . This move would ensure that its actual outputs are more than the budgeted inputs, thus leading to a positive variance ( Taylor, 2012) .
The first action that Kemper must take is to reduce the capacity at which the company is operat ing, including reducing the labor hour rate, the amount paid for supervision of the works, the amoun t pa id for its supplies and the amount of power it consumes. All these will help the management to clip the escalating cost of production, which will lead to a reduction in the actual cost incurred by the company. Alternatively, since the company has already estimated its capacity and the level at which it operates efficiently, it should review its flexible budget and the amount of its budgeted cost of operation upwards ( Taylor, 2012). This will entail increasing the amount it has budgeted for supplies and supervision of the works, the amount spen t on direct labor and the amount spen t on insurance expenses. When these changes are made , the cost control report will have favorable outcomes at the end of the trading period but with the actual and accurate representation of the capacity of the company.
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The extra work that leads to the additional $15,000 in the budget was negligible, and Kemper should have committed it. This would have resulted in a favorable outcome even though it wouldn’t have had m uch effect on the status of the company’s cost control accounts. Nonetheless, Kemper should consider looking at the aspect of industrial engineering which had a variance of $21,000. This difference should be maintained at a higher level so that any time the company invest s in the industrial engineering , it can be assured of earning a substantial amount of profit.
The company seems bot to be performing well. All the cost controls were unfavorable except the engineering work, which is also speculated to be unfavorable given the fact that it has only covered the partial cost of the subcontract. Being the person in charge, Kemper must come up with new budgetary estimates and ensure that all the actual outcomes of the current cost control account are used as the basis for making the budgetary changes ( Taylor, 2012). This way, the company shall avoid underestimat ing its capacity, or bias es when forecasting the actual amount of money it would incur in undertaking a particular activity. By using the current actual outputs to set up the new flexible budget estimates, the company shall have accurate estimates for use in the next financial year. Admitting that the firm made a mistake or error in its operation will be the first step towards correcting it in future ( Taylor, 2012). As such, Kemper should accept that the company’s cost control report indicates a poor performance and inefficiency in its operation s. Consequently, he should explore the suggestions mentioned above to fix the problem.
References
Taylor, J. (2012). Project scheduling and cost control: Planning, monitoring and controlling the baseline . Ft. Lauderdale, Fla: J. Ross Pub.
