Nicki Fenty Corporation manufactures a variety of beauty products in several departments and evaluates departments and departmental managers by comparing actual cost and output relative to the budget. Departmental managers help create the budgets and usually provide information about input quantities for materials, labor, and overhead costs. Chante Moore is the manager of the department that produces lip gloss. Chante has estimated these inputs for Lip gloss: Input Budget quantity per unit of output Direct materials 8 pounds Direct manufacturing labour 30 minutes Machine time 24 minutes The department produces about 100 units of lip gloss each day. Chante’s department always gets excellent evaluations, sometimes exceeding budgeted production quantities. For each 100 units of lip gloss produced, the company uses, on average, about 48 hours of direct manufacturing labor (eight people working 6 hours each), 790 pounds of material, and 39.5 machine-hours. Top management of Nicki Fenty Corporation has decided to implement budget standards that will challenge the workers in each department, and it has asked Chante to design more challenging input standards for the production of lip gloss. Chante provides top management with the following input quantities: Input Budget quantity per unit of output Direct materials 7.9 pounds Direct manufacturing labour 29 minutes Machine time 23.6 minutes 1. Name three budget preparation approaches. 2. Identify the budget preparation approach used 3. List and briefly discuss 1 advantage and 1 disadvantage of this approach to budget preparation using the context of the example given.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Nicki Fenty Corporation manufactures a variety of beauty products in several departments and
evaluates departments and departmental managers by comparing actual cost and output relative to
the budget. Departmental managers help create the budgets and usually provide information about
input quantities for materials, labor, and overhead costs.
Chante Moore is the manager of the department that produces lip gloss. Chante has estimated
these inputs for Lip gloss:
Input Budget quantity per unit of output
Direct materials 8 pounds
Direct manufacturing labour 30 minutes
Machine time 24 minutes
The department produces about 100 units of lip gloss each day. Chante’s department always gets
excellent evaluations, sometimes exceeding budgeted production quantities. For each 100 units of
lip gloss produced, the company uses, on average, about 48 hours of direct manufacturing labor
(eight people working 6 hours each), 790 pounds of material, and 39.5 machine-hours.
Top management of Nicki Fenty Corporation has decided to implement budget standards that
will challenge the workers in each department, and it has asked Chante to design more challenging
input standards for the production of lip gloss. Chante provides top management with the following
input quantities:
Input Budget quantity per unit of output
Direct materials 7.9 pounds
Direct manufacturing labour 29 minutes
Machine time 23.6 minutes
1. Name three budget preparation approaches.
2. Identify the budget preparation approach used
3. List and briefly discuss 1 advantage and 1 disadvantage of this approach to budget
preparation using the context of the example given.
4. Discuss the following:
a. Are these budget standards challenging for the department that produces lip gloss?
(Use the numbers provided to support your argument)
b. Why do you suppose Chante picked these standards? (Critical thinking)
c. What steps can Nicki Fenty Corporation’s top management take to ensure Chante’s
standards really meet the goals of the firm? Discuss this briefly, with reference to
the current scenario as well as to other approaches to budget preparation.
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