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Answer A:
The quarterly performance report that 4-Cycle provides to its managers includes at least the following three weaknesses:
 It is based upon a static budget. The company should switch to a flexible budget that compares the same levels of activity and shows variances between the actual budget and the flexible budget.
 The report includes costs that supervisors cannot control, such as fixed production costs and overhead.
 The report allocates fixed production costs using a single rate for all lines. Since the amount of space occupied by production may not, in fact, determine fixed production costs, the company should select an appropriate base to determine the rate for each product line.
Answer B:
Improving the way 4-Cycle reports quarterly performance to its managers may involve the following:
To remove the weaknesses in the performance report, you could recommend the following to the CFO at 4-Cycle, Inc.:
 Use flexible rather than static budgeting.
 Stop holding product managers responsible for costs they cannot control.
 Include footnotes to make the report easier to understand.
A revised quarterly report that incorporates these suggested changes follows: