The Kephart Company produces precision machine parts, Kephart uses a standard cost system, caloulates standard cost variances for each department, and reports them to department managers. Managers use the information to improve their operations. Superiors use the same nformation to evaluate managers' performance. Liz Elder was recently appointed manager of the assembly department of the company. She has complained that the system as designed is disadvantageous to her department Included among the variances charged to the departments is one for rejected units. The inspection occurs at the end of the assembly department. The inspectors attempt to identify the cause of the rejection so that the department where the error occurred can be charged with it. Not all errors can be easily identified with a department, however. The nonidentified units are totaled and apportioned to the departments according to the number of identified errors. The variance for rejected units in each department isa combination of the errors caused by the department plus a portion of the unidentified causes of rejects. Read the requirements Requirement 1. Is Elders complaint valid? Explain the reason/s) for your answer possible to determine the validity of Liz Elder's claim that the system is disadvantageous to her department. It only if, on a proportional basis, the number of unidentfied rejects caused by the other departments were greater than their proportionate number of identified rejects. Although the claim (3) be substantiated, a legitimate issue has been raised. The rejects charged to all the departments contain amounts (4) attributable to the respective departments. This violates the concept that performance measures should not contain (5) The fact that some of the rejects are likely caused by other departments will reduce the amount of the Requirement 2. What would you recommend that the company do to solve its problem with Elder and her complaint? There are two solutions to this problem. Select the best soluton from each listing below O A. Remove the apportioned rejects from the reports and charge the managers with only the rejects O B. To be fair to the managers of the less performing departments, the nonidentified units should be identified with their department C. O D. charged to the department with the lowest identified errors To be fair to Liz and her department, the nondentfed units should not be charged to Liz s department. The nonidentified units should be charged to one department on a rotation basis O A. O B. c. The nonidentifled units should be charped with the department with the most identified errors. The identified and nonidentified rejected units should not be charged to the departments. To be fair to all managers of the more performing departments, the nonidentified units should be charged to the department with the highest identified errors because most Ekely they are responsible or those nonidentified errors. O D. If the number of unidentified rejects is large and represents a large dolar value, then Kephart Company should consider inspection at the end of production in each department 1: Requirements Requirements 1. Is Elders complaint valid? Explain the reason(s) for your answer. 2. What would you recommend that the company do to solve its problam with Elder and her complain? (1) O is (2) Owould be valid (3O can(4) O cleany O is notO would not be valid O cannot D not clearly ei) iterns outside the control of the manager O items that managers complain about O items within the control of the manager O nonidentified errors O reported rejects outside her oontrol O reported rejects within her control
