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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 department for the last quarter:
The following reports were also obtained:
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 pans 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 pans—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 that 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 22 Solutions
Financial & Managerial Accounting
- The controller for Muir Companys Salem plant is analyzing overhead in order to determine appropriate drivers for use in flexible budgeting. She decided to concentrate on the past 12 months since that time period was one in which there was little important change in technology, product lines, and so on. Data on overhead costs, number of machine hours, number of setups, and number of purchase orders are in the following table. Required: 1. Calculate an overhead rate based on machine hours using the total overhead cost and total machine hours. (Round the overhead rate to the nearest cent and predicted overhead to the nearest dollar.) Use this rate to predict overhead for each of the 12 months. 2. Run a regression equation using only machine hours as the independent variable. Prepare a flexible budget for overhead for the 12 months using the results of this regression equation. (Round the intercept and x-coefficient to the nearest cent and predicted overhead to the nearest dollar.) Is this flexible budget better than the budget in Requirement 1? Why or why not?arrow_forwardPlease do not give solution in image format thankuarrow_forwardSuppose for a moment that you are a production manager in a manufacturing company and you just received a poor performance rating for not meeting your budget. If you were slightly over budget, identify at least two possible reasons for the budget variance. Please provide specific examples.arrow_forward
- Prepare a flexible budget and recompute the budget variances. Explain what might have caused the fixed costs to be different from the amount budgeted.arrow_forwardIf so, what do you suggest be done to improve the system? Prepare a flexible budget and recompute the budget variances.arrow_forwardDo not give answer in image formatearrow_forward
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