Peyton Approved Case Study

The major issue is determining why Ferguson Foundry Limited’s (FFL) actual profit was $367,600 lower than budgeted, despite selling 2,000 more wood stoves (12,000 instead of 10,000 units). This will be explained using Variance Analysis to demonstrate the underlying reasons why the company failed to meet its president’s expectations. FFL profit for 2010 was below budget due to many factors both production and marketing related.

The wages of general production employees who are idled due to machine breakdown are classified as indirect costs. Direct costs are usually variable and change as production volumes change. Thus, direct materials and direct labor are typically variable costs. For special orders, some direct costs can be fixed, however. The costs (depreciation, electricity, and routine maintenance) associated with a machine dedicated to one product are direct costs of that product. Indirect costs cannot be easily and conveniently assigned to a special order. Rather, these costs are common costs, in that they are incurred to produce a variety of special orders. Maintenance costs of general purpose equipment, the supervisor’s salary, and utilities are direct costs needed to produce special orders in general, but are indirect costs for a particular special order. Moreover, general production costs, including property taxes, insurance, lawn care, cafeteria costs, and miscellaneous supplies consumed in production are indirect costs properly allocated to special orders manufactured.

In production costs variance chart above, Direct labor price variance(sum of direct labor variances of round, square and oval) valued at $14,913, and Oval production cost variance valued at $8,381.

In order to meet customer demands for higher product quality, to comply with federally-mandated environmental regulations, and to reduce production costs, HCC must spend $2,000,000 within the next three years to upgrade equipment. The upgrade is expected to result in production efficiencies that will lower material and labor costs by reducing defective products, process waste, in-process inventory, and production man-hours through simplified work processes. It has been over a decade since significant modifications were made to the production facilities. Those changes were mostly technical in nature and did not substantially alter work processes or reduce overall employment. The average productivity gain in the industry for the past five years has been 3% per year. Financing for the loan to purchase the equipment

Yes! As we have seen in the case study the Spokane industries are very particular about the earned value reports, as we seen in the reports that the Franklin electronics provided is seemed to be a very basic according their view. The values of cost variance at the 2nd month are like 6K, 2K, 3K, 3K, here the total comes to 14k ($14,000) and the same cost variance in the following month are presented as 7K, 3K, 5K, 10K ($25,000) respectively, so here we can see that the values that were provided in the 2nd month are less than 3/4th of the 3rd month. Comes to the scheduling variance the values given to the 2nd month are said to be 8K, 1K, 2K, 20K ($31,000), the 3rd month calculations are in the order 12K, 3K, 4K, 26K ($45,000), so by seeing this we can easily say that the scheduling variance is overrated nearly 50% of its value in the previous month. So, whatever the sponsor said in the case study is true.

I also have had Peyton in four classes. She had biology with me as a sophomore. I cannot remember a time in which Peyton did not do her homework or do anything less than her best effort. She did what she was asked plus more, and did a good job at it. I had Peyton in chemistry last year and the same thing applies to that class. I currently have her in anatomy and physiology. She is doing extraordinarily well with this class also. I also had the pleasure of having Peyton in my principles of technology class last year, in which we build, program, and compete a robot as well as make a website, produce an engineering notebook, make a booth to present

I understand your frustrations since you have gone out of your way to negotiate the most advantageous prices and hired skilled staff, however the purpose of this memorandum is to explain how these seemingly favourable actions have contributed to the overall unfavourable variances. As to direct labor variance, even though your department showed favourable efficiency variance due to highl skilled staff, the benefit, unfortunately, didn't overveight the cost of paying higher wages to staff. As a production manager you might either hire less expensive laborers and train them to achieve appropriate efficiency levels or find the way to boost the efficiency even higher with current staff without having to pay for the overtime.

Management needs to determine which costs can be controlled and which costs cannot be controlled. The variance analysis simply showed that there was an unfavorable variance for manufacturing (99,000 U). Manufacturing Cost of Goods Sold must be evaluated individually because of the underlying facets from just a number. This unfavorable number could be caused by either an increase in price or a waste in using the number of unit materials. The materials variance should be broken down into the price variance and the usage variance. Exhibit 1 shows that variable cost and fixed cost were separated and variance was computed. Variable cost was the main culprit of the increase in cost. Here, we can identify that the increase may

Ferguson & Son Manufacturing should adapt a flexible budget system to improve efficiency. Garrison, Noreen & Brewer (2012) define a flexible budget as “an estimate of what revenues and costs should have been, given the actual level of activity for the period(p.385).” Garrison, Noreen & Brewer (2012) go on to say that “when a flexible budget is used in performance evaluation, actual costs are compared to what the costs should have been for the actual level of activity during the period rather than to the static planning budget (p.385).” The activity level will change each period, through out the period as the business activity increases and decreases. Emory says, “those reports don 't tell the whole story. We always seem to be interrupting the big jobs for all those small rush orders. All that set up and machine adjustment time is killing us.” This is an example of the type of activity that is going to happen and needs to be taken into consideration when one is evaluating efficiency. The flexible budget will take into consideration this activity and compare the costs to the same level of activity. The current planned budget does not take this into consideration and these are issues that the supervisor has no power over. With the knowledge from the flexible budget, Robert Ferguson Jr may decide that if they purchase a new machine they could complete these rush orders, not have any idle time and in result increase efficiency. In the flexible budget system,

The Portland Plant will continue to produce non-compliant product until a time when a deficiency in the finished product is discovered. We can therefore assume that quality is not monitored during the production phase. According to Slack et al. (2013) " ... [when] quality levels or times are significantly different from those planned, then some kind of intervention is almost certainly likely to be required" (p. 511). An emphasis on flexibility over speed that values quality control and empowers employees to stop production when anomolies are discovered will ultimately improve Portland's production times. Conclusion The Portland Plant needs to re-order their objectives (from most to least important) as follows: (1) Quality, (2) Flexibility, (3) Dependability, (4) Cost, (5) Speed. (See Polar Representation of Performance Objectives in Appendix A.) This change will emphasize a superior finished product and the ability of the plant to adapt to market changes. Improvements in quality will influence their consumers’ decision to return, reduce costs due to mistakes at each process of production, and improve the dependability of operations (Slack et al., 2013, pp. 46-47). Flexibility will assure that Portland is able to adapt to market changes and assure their ability to customize operations to match products that their buyers are developing. According to Slack et al. (2013), flexibility within an operation increases speed, saves time, and maintains dependability of

The company should reevaluate their costing process. Costing based on estimates of annual standard costs may be result to inaccurate cost estimates as cost of raw materials and manufacturing equipment fluctuate within a year. The company needs to be more dynamic in their costing

Many firms are now reconsidering their use of the traditional cost systems, and are referring to the systems as incomplete and unprocessed (Manalo, 2014). A traditional product costing system is the allocation of manufacturing overhead cost to the products manufactured (accountingcoach.com, 2014). It takes into account cost drivers such as machine hours, direct labour hours, and direct material hours. Most users of traditional product costing systems assume that volume metrics is the underlying driver of manufacturing overhead cost; under this system, manufacturing cost is only assigned to products (Johnson, 2014).

The performance metrics that were tested were first checked for the normality assumption. None of the variables satisfied normality according to the Q-Q plots. Shapiro Wilk test was conducted on each variable to ascertain the deviations from normal distribution. The cost performance generated a W = 0.918631 with a p-value < 0.0001 which supports the hypothesis that the data is not obtained from a normal distribution. The W for schedule performance was 0.442249 with a p-value < 0.0001. Similar was the case with cost change percentage (W = 0.748467, p-value < 0.0001) and schedule change percentage (W = 0.519286, p-value < 0.0001). The Q-Q plots are shown in Figure 24.

This table shows that according to absorption costing, the overhead costs of Java and Ethiopian are exactly the same, because it is estimated that it takes the same amount of direct labour hour to produce them. However, direct labour hour cannot always determine the overhead costs. For example, the cost of purchasing depends greatly on the number of orders. Although the quantity of Java (100,000kg) is much more than Ethiopian (2,000kg), their numbers of orders are very nearly the same, which leads to similar costs. When these costs are divided by the quantity of goods, a significant difference between the overhead of the two products occurs. Material handling and quality control face the similar situation. That is to say, a smaller proportion of indirect cost should be assigned to

In the first stage two indicators were used to measure the efficiency of the company: the first refers to the total hours worked by all employees divided by the number of vehicles produced; and the second indicator was the number of defects per vehicle. At the end of this analysis it was concluded that Japanese companies had a lower rate of defects per vehicle, they were twice as productive and used 40 % less space in production plants, which meant a significant reduction in costs (Graves A. and Madigan, D., 2012).