Question 5 Wood Art Pte Ltd ("Wood Art") is a manufacturer of furniture and has an annual sales of $12 million. It has four major products: bookcases, magazine racks, end tables and bar stools. Production is spread evenly over the year. Each product is managed by a production manager. Wood Art uses a standard-costing system and applies variable overhead on the basis of machine hours. Fixed production cost is allocated on the basis of square footage occupied using a predetermined plant-wide 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 April performance, Tommy Tan, manager of the bookcase line, receive the following report. 8/9 F F Units Wood Art Bookcase Production Performance Report for the Month of April Actual Budget Variance 3,000 2,500 500 $ $ $ 150,000 135,000 15,000 Revenue 23,100 18,300 41,000 20,000 15,000 35,000 3,100 U 3,300 U 6,000 U 3,400 U 9,400 5,500 6.900 6,000 5,500 6,800 Variable product costs: Direct material Direct labour Machine overhead Fixed production costs: Indirect labour Depreciation Property taxes and insurance Other fixed costs allocated: Administrative expenses Marketing expenses Research and development Total expenses 100 U 12,000 8,300 6,000 130,500 9,000 7.000 4,500 108,800 3,000 U 1300 U 1,500U 21,700 19,500 26,200 6,700 U Operating income While distributing the monthly reports at the meeting, Sharon Ang, the financial controller of Wood Art remarked that: Tommy, we need to talk about getting your division back on track. Be sure to see me after the meeting." Tommy Tan had been so convinced that his division did reasonably woli in April that Sharon Ang'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: a) Identify three weaknesses in Wood Art's monthly bookcase production performance report 9/9 b) Recommend how the report could be improved to eliminate weaknesses, and revise it accordingly. c) Discuss how the recommended changes in reporting are likely to affect Tommy's behavior Question 5 Wood Art Pte Ltd ("Wood Art") is a manufacturer of furniture and has an annual sales of $12 million. It has four major products: bookcases, magazine racks, end tables and bar stools. Production is spread evenly over the year. Each product is managed by a production manager. Wood Art uses a standard-costing system and applies variable overhead on the basis of machine hours. Fixed production cost is allocated on the basis of square footage occupied using a predetermined plant-wide 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 April performance, Tommy Tan, manager of the bookcase line, receive the following report. 8/9 F F Units Wood Art Bookcase Production Performance Report for the Month of April Actual Budget Variance 3,000 2,500 500 $ $ $ 150,000 135,000 15,000 Revenue 23,100 18,300 41,000 20,000 15,000 35,000 3,100 U 3,300 U 6,000 U 3,400 U 9,400 5,500 6.900 6,000 5,500 6,800 Variable product costs: Direct material Direct labour Machine overhead Fixed production costs: Indirect labour Depreciation Property taxes and insurance Other fixed costs allocated: Administrative expenses Marketing expenses Research and development Total expenses 100 U 12,000 8,300 6,000 130,500 9,000 7.000 4,500 108,800 3,000 U 1300 U 1,500U 21,700 19,500 26,200 6,700 U Operating income While distributing the monthly reports at the meeting, Sharon Ang, the financial controller of Wood Art remarked that: Tommy, we need to talk about getting your division back on track. Be sure to see me after the meeting." Tommy Tan had been so convinced that his division did reasonably woli in April that Sharon Ang'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: a) Identify three weaknesses in Wood Art's monthly bookcase production performance report 9/9 b) Recommend how the report could be improved to eliminate weaknesses, and revise it accordingly. c) Discuss how the recommended changes in reporting are likely to affect Tommy's behavior