Question
Regional Fishing Club, Inc. (RFC) was the west coast premier producer of fishing rods. RFC made a high-quality at a reasonable price. The firms headquarter
Regional Fishing Club, Inc. (RFC) was the west coast premier producer of fishing rods. RFC made a high-quality at a reasonable price. The firms headquarter was in Modesto, CA, but the fishing rods were manufactured in Boise, Idaho. Boise provided a rich source of experienced labor, and a local distributor sold RFC its raw materials. Over the past five years, Boise had experienced some of its coldest winters. December temperature averaged -10 degrees Fahrenheit. This weather caused some local residents to move away to warmer climates. The flight from the north was so great, in fact, that several local merchants were also considering leaving the picturesque community.
The effects of the flight were felt by RFC. The skilled labor force was dwindling, and this drove up labor costs. CEO Bill Norman became convinced that the increase in labor costs would significantly reduce profits. Bill wanted to know more about the firms financial situation, so he called RFCs controller, Mary Lang, and asked her how the changing labor force was affecting productivity and efficiency. Mary informed Bill that profits had declined significantly over the past three years, but she went on to say that Tom, the HR director, had hired an expert, who knew much about the fishing rod production process. Tom hired David Herrmann at a premium when Mr. Herrmann told Tom he would do whatever it took to beat the competition. Mary learned that Mr. Herrmann had already started and the things look promising. Bill asked her to prepare a production report that included variance analysis for the period since Mr. Herrmann began working. When Mary returned to her office to prepare the report, she discovered that her staff has already started analyzing Mr. Herrmanns performance.
Listed below is information that Mary found on the desk.
Units produced | 100,000 rods |
Standard costs |
|
Direct Materials | Per rod |
Standard quantity | 0.25 lb |
Standard Price | $2.00/lb |
Direct Labor |
|
Standard hours | 0.15 |
Standard rate | $8.00 per hour |
Variable overhead |
|
Standard hours | 0.15 |
Standard rate | $6.00 per hour |
|
|
Actual costs |
|
Direct Materials |
|
Actual quantity purchased | 30,000 lb |
Actual quantity production | 26,000 lb |
Actual price purchased | $1.90 per lb |
Direct labor |
|
Actual hours | 10,000 |
Actual rate | $10.00 per hour |
Variable overhead |
|
Actual hours | 10,000 |
Actual rate | $6.00 per hour |
1. Analyze Mr. Herrmanns performance by calculation the direct material, direct labor, and variable overhead variance.
2. Was hiring Mr. Herrmann a good decision?
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