Kenbart Company (Redesigning Profit Plan Report)

The managers at Kenbart Company have decided that increased emphasis must be placed on profit planning and comparing ‘‘results’’ to ‘‘plans.’’ A new profit planning system has been implemented to help with this objective. The company uses contribution margin reporting for internal reporting purposes and applies the concept of flexible budgeting for estimating variable costs. Kenbart’s executive management uses the following terms 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 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. provides an outline of the basic Profit Plan Report designed by the information processing subsystem. The current system produces this report at the end of the month and whenever executive management initiates a change or modification in its plans. Consequently, many different versions of the firm’s profit plan exist, which makes analysis difficult and confusing.

Several members of executive management have voiced disapproval of the Profit Plan Report because the ‘‘Plan’’ column is not well defined and varies in meaning from one report to another. Furthermore, the report does not include a current-outlook column.

Kenbert Company Profit Plan Report Month, Year-to-Date
Sales	Month	Â		Year-to-Date	Â	Â	Â	Â	Â
Variable manufacturing costs	Over/(Under)		Over/(Under)		Â	Â	Â	Â	Â
Raw materials	Actual	plan		$	%	Actual	plan	$	%
Direct labor	Â	Â		Â	Â	Â	Â	Â	Â
Variable overhead	Â	Â		Â	Â	Â	Â	Â	Â
Total variable manufacturing costs	Â			Â	Â	Â	Â	Â	Â
Manufacturing margin	Â	Â		Â	Â	Â	Â	Â	Â
Variable selling expenses				Â	Â	Â	Â	Â	Â
Contribution margin		Â		Â	Â	Â	Â	Â	Â
Fixed costs	Â	Â		Â	Â	Â	Â	Â	Â
Manufacturing		Â		Â	Â	Â	Â	Â	Â
Sales	Â	Â		Â	Â	Â	Â	Â	Â
General administration		Â		Â	Â	Â	Â	Â	Â
Income before taxes		Â		Â	Â	Â	Â	Â	Â
Income taxes		Â		Â	Â	Â	Â	Â	Â
Net income	Â	Â		Â	Â	Â	Â	Â	Â
Â	Â	Â	Â	Â	Â	Â	Â	Â	Â

Therefore, the accounting subsystem has been asked to work with the information processing subsystem in modifying the report so that users can better understand the information being conveyed and the reference points for comparison of results.

Requirements:

1. Redesign the layout of the Profit Plan Report so that it will be more useful to Kenbart’s executive management in its task of reviewing results and planning operations.

2. Explain the reason for each modification you make in the report.