Accounting for Decision Making and Control 8th Edition by Jerold Zimmerman

Exercise 3

Ice Storm
In March, a devastating ice storm struck Monroe County, New York, causing millions of dollars of damage. Mathews Peat (M P), a large horticultural nursery, was hit hard. As a result of the storm, $653,000 of additional labor and maintenance costs were incurred to clean up the nursery, remove and replace damaged plants, repair fencing, and replace glass broken when nearby tree limbs fell on some of the greenhouses.
Mathews Peat is a wholly owned subsidiary of Agro Inc., an international agricultural conglomerate. The manager of Mathews Peat, R. Dye, is reviewing the operating performance of the subsidiary for the year. Here are the results for the year as compared with budget:
* Includes property taxes, utilities, maintenance and repairs of buildings, and so on.
After thinking about how to present the performance of M P for the year, Dye decides to break out the costs of the ice storm from the individual items affected by it and report the storm separately. The total cost of the ice storm, $653,000, consists of additional labor costs of $320,000, additional materials of $220,000, and additional occupancy costs of $113,000. These amounts are net of the insurance payments received due to the storm. The alternative performance statement follows:
Required:
a. Put yourself in Dye's position and write a short, concise cover memo for the second operating statement summarizing the essential points you want to communicate to your superiors.
b. Critically evaluate the differences between the two performance reports as presented.