Reformulating a Performance Report The Touche Manufacturing Company produces and sells instruments for the aircraft industry. Material
Question:
Reformulating a Performance Report The Touche Manufacturing Company produces and sells instruments for the aircraft industry. Material and labor standards and overhead budgets have been developed for each of the departments. The assembly department budget for 19_4 appears in Exhibit 8-10.
Monthly reports are prepared comparing actual department costs with budgeted department costs. The June report for the assembly department is shown in Exhibit 8-11. ;
“You're trying to tell me I spent too much,” the department foreman shouted when he saw the report, ‘“‘and I deny it! Pve got control over my costs.
Look at Fringe Benefits. How can I spend too much? It’s a fixed percent of the wages. And direct-labor wages are set by the union contract, so the only way I can spend too much is to work overtime. There were 320 hours of overtime, but that only costs $800, not $2,300.
“I’m being charged for costs I can’t control,’ he complained again. “You know those rush orders Sales keeps bringing us? When we complain we don’t have time to do them, they argue that we will be responsible for losing business. So we do them. And they run up the costs.
“There were two special orders this month. One was for #720 thermostats, and the other for #4 altimeters. We usually do up to 1,000 thermostats at a time, and we’re allowed 1,100 hours. That 1,100 includes 20 hours of setup : lop8
time and 20 hours of tear-down time. We need that much time no matter how many we do. They wanted only 500 thermostats. I had to spend 590 hours to complete it and only 50 hours were overtime.
“We usually do 1,000 altimeters and have 1,500 hours’ to complete them, including 30 hours each of setup,time and tear-down time. They wanted 400 altimeters, and it took us 636 hours to do them. We had to work 40 hours overtime on that one. Then, we wasted another 40 hours sitting around waiting for materials that Purchasing should have had in the plant. And that preventive maintenance didn’t prevent one of the machines from breaking down. We sat around for 100 hours waiting for that to be fixed.
“How do you expect me to keep my costs down when all of this is going on? Just tell me that!”
The production manager told the controller about the foreman’s complaint and asked for a different report, which would be more meaningful to the foreman.
. Prepare the revised report to show how the foreman is really doing. Use the June 19_4 data. (Hint: One way to approach a solution to part 1 would be to expand Exhibit 8-11 by adding two rows. Insert a row at the top for ““Directlabor hours.” Change the line “Standard direct-labor cost” to “Standard direct-labor cost of hours above.” Add another row after “Standard and directlabor cost” labeled “Overtime premium,” removing that amount from the total now in the “Standard direct-labor cost” row. Then add seven columns with the overall label ‘““Analysis of Variances,” including two columns for special orders, two for unavoidable wait time, one for “Balance to be explained,”
one for spending and one for efficiency. This problem is more detailed than any in this chapter, but careful study will pay off in added understanding of standards and budgets.)
2. For which of these costs can the foreman really be held accountable? Comment. lop8
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