9.27 Direct cost and overhead variances; decision to automate Plush pet toys are produced in a largely automated factory in standard lots of 100 toys each. A standard cost system is used to control costs and to assign cost to inventory. Price standard Quantity standard Plus fabric $2 per metre 15 metres per lot Direct labour $10 per hour 2 hours per lot Variable overhead, estimated at $5 per lot, consists of miscellaneous items such as thread, a variety of plastic squeakers, and paints that are applied to create features such as eyes and whiskers. Fixed overhead, estimated at $24 000 per month, consists largely of depreciation on the automated machinery and rent for the building. Variable overhead is allocated based on lots produced. The standard fixed overhead allocation rate is based on the estimated output of 1000 lots per month. Actual data for last month follow. Production 2,400 lots Sales 1,600 lots Plus fabric purchased 30,000 metres Cost of fabric purchased $62,000 Fabric used 34,000 metres Direct labour 4,200 hours Direct labour cost $39,000 Variable overhead $12,000 Fixed overhead $24,920 The entitys policy is to record materials price variances at the time materials are purchased. Required (a) Calculate the commonly used direct cost and overhead variances. (b) Management is considering further automation in the factory. Robot-controlled forklifts could reduce the standard direct labour per lot to 1.5 hours. (i) Estimate the savings per lot that would be realised from this additional automation. (ii) Assume the company would be able to generate the savings as calculated. Considering only quantitative factors, calculate the maximum price the managers would be willing to pay for the robot-controlled forklifts. Assume the companys management requires equipment costs to be recovered in five years, ignoring the time value of money. 15.16 Big Bertram uses the just-in-time method to manufacture golf clubs. The manufacturing schedule for the clubs is developed as customers place orders. Each club is made within a cell where five workers have production stations. The raw materials are delivered to the cell as needed. Each worker in the cell performs one step in the manufacturing process and then inspects the club before giving it to the next person. When a club is finished, it is set on a finished goods rack, which is sent to the packaging department at regular intervals. Required (a) What do we call a manufacturing system such as the one used by Big Bertram? (b) Describe general advantages of this type of system. (c) The supplier that manufactures the weights that are inserted in each club head would like to monitor Big Bertrams inventory levels through the internet so that its new software program could release deliveries at appropriate times. List qualitative factors that might affect Big Bertrams decision about this proposal.