Question
Read carefully the following Case information before planning to answer question (1) and(2): Video Tech Ltd manufactures video game machines. Market saturation and technological innovations
Read carefully the following Case information before planning to answer question (1) and(2):
Video Tech Ltd manufactures video game machines. Market saturation and technological innovations have caused pricing pressures that have resulted in declining profits. To stem the slide in profits until new products can be introduced, top management has started to focus on achieving cost savings in manufacturing and increases in sales volume. Sales can be increased only if production volume increases. Therefore, an incentive program has been developed to reward those production managers who contribute to an increase in the number of units produced and achieve cost reductions. In addition, a just-in-time purchasing program has been implemented, and raw materials are purchased on an as-needed basis. The production managers have responded to the pressure to improve manufacturing performance and this has resulted in an increase in the number of completed units over normal production levels. The video game machines are put together by the assembly group, which requires parts from both the printed circuit boards (PCB) and the reading heads (RH) groups. To increase production levels, the PCB and RH groups started to reject parts that previously would have been tested and modified to meet manufacturing standards. Preventative maintenance on machines used in the production of these parts has been postponed, with only emergency repair work being performed to keep production lines moving. The maintenance department is concerned that there will be serious breakdowns and unsafe operating conditions. The more aggressive assembly group production supervisors have pressured maintenance personnel to attend to their machines at the expense of other groups. This has resulted in machine downtime in the PCB and RH groups which, when coupled with demands for accelerated parts delivery by the assembly group, has led to more frequent parts rejections and increased friction between departments. Video Tech uses a standard costing system. The standard costs for video game machines are as follows:
Standard cost per unit Quantity Cost Total Direct material: Housing unit 1 unit $20 $20 Printed circuit boards 2 boards 15 30 Reading heads 4 heads 10 40 Direct labour: Assembly group 2.0 hours 24 48 PCB group 1.0 hours 27 27 RH group 1.5 hours 30 45 Total 4.5 hours Variable overhead* 2 9* Total standard variable cost per unit $219Video Tech Ltd Contribution margin report for the month ending 31 May Budgeted Actual Variance Units 2 000 2 200 200 F Revenue $600 000 $660 000 $60 000 F Variable costs: Direct material 180 000 220 400 40 400 U Direct labour 240 000 280 380 40 380 U Variable overhead 18 000 18 800 800 U Total variable costs $438 000 $519 580 $81 580 U Contribution margin $162 000 $140 420 $21 580 UVideo Tech Ltd Resource usage report for the month ending 31 May Cost item Actual quantity Actual cost Direct material: Housing units 2 200 units '3 44 000 Printed circuit boards 4 700 boards 75 200 Reading heads 9 200 heads 101 200 Direct labour: Assembly 3 900 hours 93 600 Printed circuit boards 2 400 hours 71 280 Reading heads 3 500 hours 115 500 Total 9 800 hours Variable overhead . Ml Total variable cost $519 580Step by Step Solution
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