Managerial Accounting

C. New Fashions Lid manufactures shirts for retail chains. Andy Jorgenson, the controller, Is becoming Increasingly disenchanted with New Fashions' standard costing system. The budgeted and actual amounts for direct materials and direct manufacturing labour for June 2019 were as follows: Budgeted Actual Amounts Amounts Shirts manufactured $6,000 $6,732 Direct materials cost 30,000 30,294 Direct materials units (rolls of cloth] 600 612 Direct manufacturing labour costs 27,000 27693 Direct manufacturing labour-hours (DMLH) 1,500 1,530 There were no beginning or ending inventory of materials. Standard costs are based on a study of the operations conducted by an independent consultant six months earlier. Jorgenson observes that, since that study, he has rarely seen an unfavourable variance of any magnitude. He notes that even at their current output levels. the workers seem to have a lot of time for sitting around and gossiping. Jorgenson is concerned though that the production manager, Charlie Fenton, is aware of this but does not want to lighten up the standards because the standards make his performance look good. Required 1. Compute the price and efficiency variance of New Fashions for direct materials and direct manufacturing labour in June 2019 2. Describe the types of actions the employees at New Fashions may have taken to reduce the accuracy of the standards set by the independent consultant. Why would employees take those actions? Is this behaviour ethical? 3. If Jorgensen does not do anything about the standard coster will his behaviour violate any of the ethical conduct characteristics described in the course (see chapter 1)? 4. What actions should Jorgensen take ? 5. Jorgensen can obtain benchmarking information about the estimated costs of New Fashions' major competitors from Benchmarking Clearing House (BCH). Discuss the pros and cons of using the BCH information to compute the variances in requirement one above