Albuquerque Wood Crafts, Inc., is a manufacturer of furniture for specialty shops throughout the south-west and has an annual sales volume of $24 million. The company has four major product lines: book-cases, magazine racks, end tables, and bar stools. Each line is managed by a production manager. Since production is spread fairly evenly over the 12 months of operation, Sara McKinley, the controller, has prepared an annual budget divided into 12 periods for monthly reporting purposes.

Albuquerque Wood Crafts uses a standard-costing system and applies variable overhead on the basis of process hours. Fixed production cost is allocated on the basis of square footage occupied using a predetermined plantwide rate; the size of the space occupied varies considerably among the product lines. All other costs are assigned on the basis of revenue dollars earned. At the monthly meeting to review November performance, Steve Clark, manager of the bookcase line, received the following report.

While distributing the monthly reports at the meeting, McKinley remarked to Clark, “We need to talk about getting your division back on track. Be sure to see me after the meeting.” Clark had been so convinced that his division did well in November that McKinley’s remark was a real surprise. He spent the balance of the meeting avoiding the looks of his fellow managers and trying to figure out what could have gone wrong. The monthly performance report was no help.

Required:
1. a. Identify three weaknesses in Albuquerque Wood Crafts, Inc.’s monthly Bookcase Production Performance Report.
b. Discuss the behavioral implications of Sara McKinley’s remarks to Steve Clark during the meeting.
2. The company could do a better job of reporting monthly performance to the production managers.
a. Recommend how the report could be improved to eliminate weaknesses, and revise it accordingly.
b. Discuss how the recommended changes in reporting are likely to affect Steve Clark’s behavior.
(CMA,adapted)

Transcribed Image Text:

ALBUQUERQUE WOOD CRAFTS, INC. Bookcase Production Performance Report For the Month of November Variance 500 F $70,500 F Production overhead 300 U Administrative expenses Marketing expenses Operating income