"Benchmarking against other companies enables a company to identify the lowest-cost producer. This amount should become the performance measure for next year." Do you agree?
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How does variance analysis help in continuous improvement?
Collegiate Corn Hole is a small business that Zach Morris developed while in college. He began building wooden corn hole game sets for friends, hand painted with college colors and logos. As demand grew, he hired some workers and began to manage the operation. Collegiate Corn Hole maintains two departments: construction and painting. In the construction department, the games require wood and labor. Collegiate Corn Hole has some employees who have been with the company for a very long time and others who are new and inexperienced. Collegiate Corn Hole uses standard costing for the game sets. Zach expects that a typical set should take 4 hours of labor in the construction department, and the standard wage rate is \(\$ 10.00\) per hour. An average set uses 24 square feet of wood, allowing for a certain amount of scrap. Because of the nature of the wood, workers must work around flaws in the materials. Zach shops around for good deals and expects to pay \$5.00 per square feet. Zach does not store inventory, and buys the wood as he receives an order. For the month of September, Zach's workers produced 60 corn hole sets using 250 hours and 1,500 square feet of wood. Zach bought wood for \(\$ 7.350\) (and used the entire quantity) and incurred labor costs of \(\$ 2,375\). 1\. For the construction department, calculate the price and efficiency variances for the wood and the price and efficiency variances for direct manufacturing labor. 2\. Record the journal entries for the variances incurred. 3\. Discuss logical explanations for the combination of variances that the construction department of Collegiate Corn Hole experienced.
Dawson, Inc., is a privately held furniture manufacturer. For August 2017, Dawson had the following standards for one of its products, a wicker chair The following data were compiled regarding actual performance: actual output units (chairs) produced, 2,\(200 ;\) square yards of input purchased and used, 6,\(200 ;\) price per square yard, \(\$ 5.70 ;\) direct manufacturing labor costs, \(\$ 9,844 ;\) actual hours of input, \(920 ;\) labor price per hour, \(\$ 10.70\) 1\. Show computations of price and efficiency variances for direct materials and direct manufacturing labor. Give a plausible explanation of why each variance occurred. 2\. Suppose 8,700 square yards of materials were purchased (at \(\$ 5.70\) per square yard), even though only 6,200 square yards were used. Suppose further that variances are identified at their most timely control point; accordingly, direct materials price variances are isolated and traced at the time of purchase to the purchasing department rather than to the production department. Compute the price and efficiency variances under this approach.
All of the following statements regarding standards are accurate except: a. Standards allow management to budget at a per-unit level. b. Ideal standards account for a minimal amount of normal spoilage. c. Participative standards usually take longer to implement than authoritative standards. d. Currently attainable standards take into account the level of training available to employees.
List three causes of a favorable direct materials price variance.
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