Week 8 Solutions to Workshop Exercises

Week 8 Solutions to Workshop Exercises - Solutions to...

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Solutions to Workshop Exercises PROBLEM 14.32 (65 minutes) Problems with conventional performance measures; strategy and performance measures: manufacturer 1 Standard costing performance measures: The monthly standard costing reports would record detailed direct material and direct labour variances (possibly for each major type of material and labour) for each production department. The variances would be broken into price and quantity variances for materials and rate, and efficiency variances for labour. The overhead variances would depend on whether there was a plantwide or departmental overhead rate and whether fixed and variable or total overhead rates were used. There would be some form of overhead spending and possibly efficiency variances. These may be plantwide or for each department. 2 Usefulness of the standard costing information: For each level of management, the reports will be relevant only for controlling costs, not other important sources of value such as quality and delivery performance. As far as the cost information is concerned, the overhead variances provide little useful information because they are related to many different costs all bundled together. Also, the overhead variances are likely to be based on inappropriate cost drivers. The usefulness of the other cost information is likely to depend on the level of management. (a) Managing director: The monthly reports will provide an overview of the costs incurred, compared to standard costs, for each department for the month. This information is likely to be presented to the managing director in a summarised form. (b) Manufacturing plant manager: The monthly reports will provide an overview of the costs incurred, compared to standard costs, for each department for the month.
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