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Variance interpretation You have been asked to investigate some cost problems in the Assembly Department of Ruthenium Electronics Co., a consumer electronics company. To begin your investigation, you have obtained the following budget performance report for the department for the last quarter. Ruthenium Electronics Co.—Assembly Department Quarterly Budget Performance Report Standard Quantity at Standard Rates Actual Quantity at Standard Rates Quantity Variances Direct labor $157,500 $227,500 $ 70,000 U Direct materials 297,500 385,000 87,500 U Total $455,000 $612,500 $157,500 U You also obtained the following reports: Ruthenium Electronics Co.—Purchasing Department Quarterly Budget Performance Report Actual Quantity at Standard Rates Actual Quantity at Actual Rates Price Variance Direct materials $437,500 $385,000 $(52,500) F Ruthenium Electronics Co.—Fabrication Department Quarterly Budget Performance Report Standard Quantity at Standard Rates Actual Quantity at Standard Rates Quantity Variances Direct labor $245,000 $203,000 $(42,000) F Direct materials 140,000 140,000 0 Total $385,000 $343,000 $(42,000) F You also interviewed the Assembly Department supervisor. Excerpts from the interview follow: Q: What explains the poor performance in your department? A: Listen, you’ve got to understand what it’s been like in this department recently. Lately, it seems no matter how hard we try, we can’t seem to make the standards. I’m not sure what is going on, but we’ve been having a lot of problems lately. Q : What kind of problems? A: Well, for instance, all this Quarter we’ve been requisitioning purchased parts from the material storeroom, and the parts just didn’t fit together very well. I’m not sure what is going on, but during most of this quarter, we’ve had to scrap and sort purchased parts—just to get our assemblies put together. Naturally, all this takes time and material. And that’s not all. Q: Go on. A: All this Quarter the work we've been receiving from the Fabrication Department has been shoddy. I mean, maybe around 20% of the stuff that comes in from Fabrication just can’t be assembled. The fabrication is all wrong. As a result we've had to scrap and rework a lot of the stuff. Naturally, this has just shot our quantity variances. Interpret the variance reports in light of the comments by the Assembly Department supervisor.

BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 23, Problem 23.23.4CP
Textbook Problem

Variance interpretation

 You have been asked to investigate some cost problems in the Assembly Department of Ruthenium Electronics Co., a consumer electronics company. To begin your investigation, you have obtained the following budget performance report for the department for the last quarter.

Ruthenium Electronics Co.—Assembly Department Quarterly Budget Performance Report
  Standard Quantity at Standard Rates Actual Quantity at Standard Rates Quantity Variances
Direct labor $157,500 $227,500 $ 70,000 U
Direct materials 297,500 385,000 87,500 U
Total $455,000 $612,500 $157,500 U

 You also obtained the following reports:

Ruthenium Electronics Co.—Purchasing Department Quarterly Budget Performance Report
  Actual Quantity at Standard Rates Actual Quantity at Actual Rates Price Variance
Direct materials $437,500 $385,000 $(52,500) F
Ruthenium Electronics Co.—Fabrication Department Quarterly Budget Performance Report
  Standard Quantity at Standard Rates Actual Quantity at Standard Rates Quantity Variances
Direct labor $245,000 $203,000 $(42,000) F
Direct materials 140,000 140,000 0
Total $385,000 $343,000 $(42,000) F

 You also interviewed the Assembly Department supervisor. Excerpts from the interview follow:

 Q: What explains the poor performance in your department?

 A: Listen, you’ve got to understand what it’s been like in this department recently. Lately, it seems no matter how hard we try, we can’t seem to make the standards. I’m not sure what is going on, but we’ve been having a lot of problems lately.

 Q: What kind of problems?

 A: Well, for instance, all this Quarter we’ve been requisitioning purchased parts from the material storeroom, and the parts just didn’t fit together very well. I’m not sure what is going on, but during most of this quarter, we’ve had to scrap and sort purchased parts—just to get our assemblies put together. Naturally, all this takes time and material. And that’s not all.

 Q: Go on.

 A: All this Quarter the work we've been receiving from the Fabrication Department has been shoddy. I mean, maybe around 20% of the stuff that comes in from Fabrication just can’t be assembled. The fabrication is all wrong. As a result we've had to scrap and rework a lot of the stuff. Naturally, this has just shot our quantity variances.

 Interpret the variance reports in light of the comments by the Assembly Department supervisor.

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Chapter 23 Solutions

Accounting
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