Cabinets, Inc., is a large manufacturer of modular kitchencabinets, sold primarily to builders and developers. The companyuses a standard cost system. Standard production costs have beendeveloped for each type of cabinet; these costs, and any costvariances, are charged to the production department. A budget alsohas been developed for the sales department. The sales departmentis credited with the gross profit on sales (measured at standardcosts) and is charged with selling expenses and any variationsbetween budgeted and actual selling expenses....... In early Aprilthe manager of the sales department asked the production departmentto fill a rush order of kitchen cabinets for a tract of 120 homes.The sales manager stated that the entire order must be completed byMay 31. The manager of the production department argued that anorder of this size would take twelve weeks to produce. The salesmanager answered: "The customer needs it on May 31, or we don't getthe business. Do you want to be responsible for our losing acustomer who makes orders of this size?"..... Of course, theproduction manager did not want to take that responsibility.Therefore, he gave in and processed the rush order by havingproduction personnel work overtime through April and May. As aresult of the overtime, the performance reports for the productiondepartment in those months showed large, unfavorable labor ratevariances. The production manager, who in the past had pridedhimself on coming in under budget, now has very ill feelings towardthe sales manager. He also has stated that the productiondepartment will never again accept a rush order..... A. Identifyany problem that you see in the company's standard cost system orin the manner in which cost variances are assigned to theresponsible managers...... B. Make recommendations for changing thecost accounting system to reduce or eliminate any problems that youhave identified.
Cabinets, Inc., is a large manufacturer of modular kitchencabinets, sold primarily to builders and developers. The companyuses a standard cost system. Standard production costs have beendeveloped for each type of cabinet; these costs, and any costvariances, are charged to the production department. A budget alsohas been developed for the sales department. The sales departmentis credited with the gross profit on sales (measured at standardcosts) and is charged with selling expenses and any variationsbetween budgeted and actual selling expenses....... In early Aprilthe manager of the sales department asked the production departmentto fill a rush order of kitchen cabinets for a tract of 120 homes.The sales manager stated that the entire order must be completed byMay 31. The manager of the production department argued that anorder of this size would take twelve weeks to produce. The salesmanager answered: "The customer needs it on May 31, or we don't getthe business. Do you want to be responsible for our losing acustomer who makes orders of this size?"..... Of course, theproduction manager did not want to take that responsibility.Therefore, he gave in and processed the rush order by havingproduction personnel work overtime through April and May. As aresult of the overtime, the performance reports for the productiondepartment in those months showed large, unfavorable labor ratevariances. The production manager, who in the past had pridedhimself on coming in under budget, now has very ill feelings towardthe sales manager. He also has stated that the productiondepartment will never again accept a rush order..... A. Identifyany problem that you see in the company's standard cost system orin the manner in which cost variances are assigned to theresponsible managers...... B. Make recommendations for changing thecost accounting system to reduce or eliminate any problems that youhave identified.
