Since Department B makes a fairly constant number of finished products 400

# Since department b makes a fairly constant number of

• Homework Help
• 99

This preview shows page 84 - 87 out of 99 pages.

Since Department B makes a fairly constant number of finished products (400 units) each day, it would be easy to trace the cost of bearings to the wheels completed daily. However, the fact that Rollie measures ball bearings by weight and discards leftover bearings at the end of each day suggests that they are a relatively inexpensive item and not worth the effort to restock or track in inventory. As such, it could be argued that ball bearings should be classified as overhead (e.g., indirect materials). 2. Nonfinancial performance measures for Department B might include: Number or proportion of wheels sent back for rework and/or amount or proportion of time spent on rework; Number of wheels thrown away, ratio of wheels thrown away to wheels reworked, and/or ratio of bad to good wheels; Amount of down time for broken machines during the day; Weight of ball bearings discarded, or ratio of weights used and discarded. 3. If the number of wheels thrown away is significant relative to the number of reworked wheels, then it is not efficient to rework them and so Rollie should re-examine the rework process or even just throw away all the bad wheels without rework. If the amount of rework is significant then the original process is not turning out quality goods in a timely manner. Rollie might slow down the process in Department B so it takes a little longer to make each good wheel, but the number of good wheels will be higher and may even save time overall if rework time drops considerably. They might also need to service the machines more often than just after the total daily production run, in which case they will trade off intentional down time for more efficient processing.
If the amount of unintentional down time is significant they might bring in the mechanics during the day to fix a machine that goes down during a production run. Finally, Rollie might consider determining a better measure of ball bearings to requisition each day so that fewer are discarded, and might also keep any leftover ball bearings for use the next day. 8-43 (45 min.) Overhead variances, governance. 1. a. Total budgeted overhead \$31,250,000 Budgeted variable overhead (\$10 budgeted rate per machine-hour × 2,500,000 budgeted machine-hours) 25,000,000 Budgeted fixed overhead \$ 6,250,000 b. Budgeted cost per machine-hour Budgeted fixed OH rate c. Fixed overhead rate variance = Actual costs incurred – Budgeted amount. Because fixed overhead rate variance is unfavourable, the amount of actual costs is higher than the budgeted amount. Actual cost = \$6,250,000 + \$1,500,000 = \$7,750,000 d. Production-volume variance = Budgeted fixed overhead Fixed overhead allocated using budgetedinput allowed for actual output units produced = \$6,250,000 – (\$2.50 per machine-hour × 2 machine-hours per unit* × 1,245,000 units)
= \$6,250,000 – \$6,225,000 = \$25,000 U * Budgeted variable overhead per unit = \$20 Budgeted variable overhead rate = \$10 per machine-hour Therefore, budgeted machine hours allowed per unit = \$20/\$10 = 2 machine-hours 2. Variable overhead rate variance: × = (\$10.50 – \$10) × 2,400,000 = \$1,200,000 U Variable overhead efficiency variance: Actual units of Budgeted units of Budgeted variable overhead