Accounting Information Systems 7th Edition by Cynthia Heagy,Constance Lehmann

Exercise 8

Kenbart Company decided increased emphasis had to be placed on profit planning and the analysis of results as compared with its plans. A new computerized profit planning system has been implemented to help in this objective.
The company employs contribution margin reporting for internal reporting purposes and applies the concept of flexible budgeting for estimating variable costs. The following terms are used by Kenbart's executive management when reviewing and analyzing actual results and the profit plan:
• Original plan-Profit plan approved and adopted by management for the year
• Revised plan-Original plan modified as a consequence of action taken during the year (usually quarterly) by executive management
• Flexed Revised plan-The most current plan (i.e., either original plan or revised plan, if one has been prepared) adjusted for changes in volume and variable expense rates
• YTD actual results-The actual results of operations for the year
• Current outlook-The summation of the actual year-to-date results of operations plus the flexed revised plan for the remaining months of the year
Executive management meets monthly to review the actual results as compared with the profit plan. Any assumptions or major changes in the profit plan usually are incorporated on a quarterly basis once the first quarter is completed.
An outline of the basic Profit Plan Report is reproduced below. This report is prepared at the end of each month. In addition, this report is generated whenever executive management initiates a change or modification in its plans. Consequently, many different versions of a company profit plan exist, which make analysis difficult and confusing.
Several members of executive management have voiced the disapproval of die Profit Plan Report because the Actual Plan column is not well defined and varies in meaning from one report to another. Furthermore, no Current Outlook column is included in the report. Therefore, the accounting department has been asked to modify the report so users can understand better the information being conveyed and the reference points for comparison of results.
KENBART COMPANY
PROFIT PLAN REPORT
MONTH, YEAR

Required:
a. What are the advantages to Kenbart Company's having its profit plan system computerized?
b. Redesign the layout of the Profit Plan Report so it will be more useful to Kenbart's executive management in its task of reviewing results and planning operations. Explain the reason for each modification you make in the report.
c. What types of data would Kenbart Company be required to capture in its computer-based files in order to generate die plans and results that executive management reviews and analyzes?
[CMA adapted]