Ron Kanobi, Director Of Operations, was upset because their group was not receiving their bonus due to the performance report provided below by the Senior Management Team. They explained to a colleague, "I know that my department has worked more efficiently than it has ever worked before and completed more units. I thought it might be over the supplies that have increased due to work at home needs but that is only a sm amount of the overall budget. Everything is unfavourable, and I don't even know why." The Star Worlds Company Performance Report-Operations Department Actual Budget Variance Units 34,000 30,000 Variable overhead costs: Tech support Indirect labour Supplies Maintenance Total variable overhead cost Fixed overhead cost: Supervision LT. Maintenance Depreciation Total fixed overhead cost 20,750 18,000 2,750 U 80,200 72,000 8,200 U 34,500 27,000 7,500 U 43.000 178,450 39,000 4,000 U 156,000 22,450 U 53,000 53,000 93,900 93,600 300 U 36,400 36400 183.000 183.300 300 U Total Overhead Cost 361,750 339,000 22,750 U The Operations Department had a budgeted activity level of 30,000 units. Actual production for the month was 34,000 units.

Ron Kanobi, Director Of Operations, was upset because their group was not receiving their bonus due to the performance report provided below by the Senior Management Team. They explained to a colleague, "I know that my department has worked more efficiently than it has ever worked before and completed more units. I thought it might be over the supplies that have increased due to work at home needs but that is only a sm amount of the overall budget. Everything is unfavourable, and I don't even know why." The Star Worlds Company Performance Report-Operations Department Actual Budget Variance Units 34,000 30,000 Variable overhead costs: Tech support Indirect labour Supplies Maintenance Total variable overhead cost Fixed overhead cost: Supervision LT. Maintenance Depreciation Total fixed overhead cost 20,750 18,000 2,750 U 80,200 72,000 8,200 U 34,500 27,000 7,500 U 43.000 178,450 39,000 4,000 U 156,000 22,450 U 53,000 53,000 93,900 93,600 300 U 36,400 36400 183.000 183.300 300 U Total Overhead Cost 361,750 339,000 22,750 U The Operations Department had a budgeted activity level of 30,000 units. Actual production for the month was 34,000 units.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter8: Budgeting For Planning And Control

Section: Chapter Questions

Problem 40P: The controller for Muir Companys Salem plant is analyzing overhead in order to determine appropriate...

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Jane Erickson, manager of an electronics division, was not pleased with the results that had recently been reported concerning the divisions activity-based management implementation project. For one thing, the project had taken eight months longer than projected and had exceeded the budget by nearly 35 percent. But even more vexatious was the fact that after all was said and done, about three-fourths of the plants were reporting that the activity-based product costs were not much different for most of the products than those of the old costing system. Plant managers were indicating that they were continuing to use the old costs as they were easier to compute and understand. Yet, at the same time, they were complaining that they were having a hard time meeting the bids of competitors. Reliable sources were also revealing that the divisions product costs were higher than many competitors. This outcome perplexed plant managers because their control system still continued to report favorable materials and labor efficiency variances. They complained that ABM had failed to produce any significant improvement in cost performance. Jane decided to tour several of the plants and talk with the plant managers. After the tour, she realized that her managers did not understand the concept of non-value-added costs nor did they have a good grasp of the concept of kaizen costing. No efforts were being made to carefully consider the activity information that had been produced. One typical plant manager threw up his hands and said: This is too much data. Why should I care about all this detail? I do not see how this can help me improve my plants performance. They tell me that inspection is not a necessary activity and does not add value. I simply cant believe that inspecting isnt value-added and necessary. If we did not inspect, we would be making and sending more bad products to customers. Required: Explain why Janes division is having problems with its ABM implementation.
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Drew Castello, general manager of Sunflower Manufacturing, was frustrated. He wanted the budgeted results, and his staff was not getting them to him fast enough. Drew decided to pay a visit to the accounting office, where Jeff Hollingsworth was supposed to be working on the reports. Jeff had recently been hired to update the accounting system and speed up the reporting process. “What’s taking so long?” Drew asked. “When am I going to get the variance reports?” Jeff sighed and attempted to explain the problem. “Some of the variances appear to be way off. We either have a serious problem in production, or there is an error in the spreadsheet. I want to recheck the spreadsheet before I distribute the report.” Drew pulled up a chair, and the two men went through the spreadsheet together. The formulas in the spreadsheet were correct and showed a large unfavorable direct labor efficiency variance. It was time for Drew and Jeff to do some investigating. After looking at the time records, Jeff…
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