Some cost problems have been identified in the Assembly Department of Schumann Electronics Co., a consumer electronics company. The department’s budget performance report for the last quarter follows: Direct Labor:Standard Quantity at Standard Rates.... $157,500Actual Quantity at Standard Rates......... $227,500Quantity Variances........................................ $70,000 (U) Direct Materials:Standard Quantity at Standard Rates.... $297,500Actual Quantity at Standard Rates......... $385,000Quantity Variances........................................ $87,500 (U) Total:Standard Quantity at Standard Rates.... $455,000Actual Quantity at Standard Rates......... $612,500Quantity Variances........................................ $157,500 (U) The performance reports from the Purchasing and Fabrication departments are also available for the same period: Direct Materials: Actual Quantity at Standard Rates... $437,500Actualy Quantity at Actual Rates...... $385,000Price Variance........................................... $(52,000) F Schumann Electronics Co.—Purchasing Department Quarterly Budget Performance Report Standard Quantity at Standard Rates Actual Quantity at Standard Rates Quantity Variance Direct Labor $245,000 $203,000 $(42,000) F Direct Materials $140,000 $140,000 $0 Total $385,000 $343,000 $(42,000) F The following are some excerpts from an interview with the Assembly Department supervisor: 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 materials storeroom, and the parts just haven’t been fitting 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. Analyze and interpret the variance reports and the comments by the Assembly Department supervisor.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Some cost problems have been identified in the Assembly Department of Schumann Electronics Co., a consumer electronics company. The department’s budget performance report for the last quarter follows:
Direct Labor:
Standard Quantity at Standard Rates.... $157,500
Actual Quantity at Standard Rates......... $227,500
Quantity Variances........................................ $70,000 (U)
Direct Materials:
Standard Quantity at Standard Rates.... $297,500
Actual Quantity at Standard Rates......... $385,000
Quantity Variances........................................ $87,500 (U)
Total:
Standard Quantity at Standard Rates.... $455,000
Actual Quantity at Standard Rates......... $612,500
Quantity Variances........................................ $157,500 (U)
The performance reports from the Purchasing and Fabrication departments are also available for the same period:
Direct Materials:
Actual Quantity at Standard Rates... $437,500
Actualy Quantity at Actual Rates...... $385,000
Price Variance........................................... $(52,000) F
| Schumann Electronics Co.—Purchasing Department Quarterly Budget Performance Report | |||
|---|---|---|---|
| Standard Quantity at Standard Rates | Actual Quantity at Standard Rates | Quantity Variance | |
| Direct Labor | $245,000 | $203,000 | $(42,000) F |
| Direct Materials | $140,000 | $140,000 | $0 |
| Total | $385,000 | $343,000 | $(42,000) F |
The following are some excerpts from an interview with the Assembly Department supervisor:
| 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 materials storeroom, and the parts just haven’t been fitting 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. |
Analyze and interpret the variance reports and the comments by the Assembly Department supervisor.
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