ACCT 2230 Chapter Notes - Chapter 10: Unit, European Cooperation In Science And Technology, Unemployment Benefits

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1 Nov 2017

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A system of management in which standards are set for various operating activities that are then periodically compared to actual results. Any differences that are deemed significant are brought to the attention of management as (cid:498)exceptions. (cid:499: standard cost record. Standards that allows for now machine breakdowns or other work interruptions and that require peak efficiency at all times: practical standards. Standards that allows for no normal machine downtime and other work interruptions and can be attained through reasonable, although highly efficient, efforts by the average employees: standard price per unit. The price that should be paid for a single unit of materials, including shipping, receiving, and other such costs, net of any discounts allowed: standard quantity per unit. The amount of materials that should be required to complete a single unit of product, including allowances for normal waste, spoilage, and other inefficiencies: standard rate per hour.

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Merit Inc. has used a standard cost system for evaluating theperformance of its responsibility center managers for 3 years. Topmanagement believes that standard costing has not produced the costsavings or increases in productivity and profits promised by theaccounting department. Large unfavorable variances are consistentlyreported for most cost categories, and employee morale has fallensince the system was installed. To help pinpoint the problem withthe system, top management asked for separate evaluations of thesystem by the plant manager, that controller, and the humanresources director. Their responses are summarized here. Plantmanager - The standards are unrealistic. They assume an ideal workenvironment that does not allow materials defects or errors by theworkers or machines. Consequently, morale has gone down andproductivity has declined. Standards should be based on expectedannual prices and recent past averages for efficiency. Thus, if weimprove over the past, we receive a favourable variance. Controller- The goal of accounting reports is to measure performance againstan absolute standard and the best approximation of that standard isideal conditions. Cost standards should be comparable to "par" on agolf course. Just as the game of golf uses a handicap system toallow for differences in individual players' skills and scores, itcould be necessary for management to interpret variances based onthe circumstances that produced the variances. Accordingly, in onecase, a given unfavorable variance could represent poorperformance; in another case, it could represent good performance.The managers are just going to have to recognize these subtletiesin standard cost systems and depend on upper management to be fair.Human resources director - The key to employee productivity isemployee satisfaction and a sense of accomplishment. A set ofstandards that can never be met denies managers of this vitalmotivator. The current standards would be appropriate in alaboratory with a controlled environment but not in the factorywith its many variables. If we are to recapture our old "teamspirit," we must give the managers a goal that they can achievethrough hard work.

Required: Discuess the behavioral issues involved in MeritInc.'s standard cost dilemma. Evaluate eavh of the three responses(pros and cons) and recommend a course of action.

_________________________________________________________Question 1 Shreshtha Enterprises manufactures Caravans. The companyhas two main Caravans it sells commercially: a Deluxe 50-seaterCaravan and a Standard 24-seater Caravan. The Company has alsostarted manufacturing an Economy 10-seater Caravan to KhadkaTraders, recently. The Economy Caravan is similar to the DeluxeCaravan. Khadka has requested Shrestha to create a bid for 150Economy Caravans. You have been requested by your manager toprepare this bid. In preparing the bid, you find the following twodocuments: ï· A standard cost sheet for the Deluxe Caravans soldcommercially. ï· A recent invoice to Khadka for 200 Economy CaravansThe details fo these documents are given below. Term 3 ASSIGNMENT2, 2016 Foundations of Management Accounting â ACCT20076 Page 2 of2 Standard Cost Sheet: Deluxe Caravans Direct materials $9500Direct manufacturing labour 32 hours 704 Manufacturing overhead*$3.50 per direct labour dollar 2,464 Total cost $12,668 Retailmarkup on total cost 25% Retail price $15,835 Invoice Date:November, 1, 2015 Bill to: Khadka For: 200 Economy Caravans Directmaterials $2.090,000 Direct manufacturing labour** 164,400Manufacturing overhead 575,400 Total cost 2,829,800 Markup on totalcost 20% Total due $3,395,760 a. Calculate the total bid if youbase your calculations on the standard cost sheet assuming a costplus 20% mark-up. (3.5 marks) b. Calculate the total if you baseyour calculations on the November 1, 2015 invoice assuming a costplus 20% mark-up. (3.5 marks) c. What are the main discrepanciesbetween the bids you calculated in requirements 1 and 2? (6 marks)d. What bid should you present to your manager? What principlesfrom the IMA â Standards of Ethical Conduct for Practitioners ofManagement Accounting and Financial Management,â as described inChapter 1, should guide your decision? As a manager what would youdo? (7 marks) *Overhead cost pool includes inspection labour ($15per hour), setup labour ($12 per hour), and other indirect costsassociated with production. ** Direct manufacturing labour includes30 production hours per unit, 4 inspection hours per unit, and 6setup hours per unit.

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Stellar Bright Solar (âSBSâ or âthe Companyâ) is a business that contracts to develop, construct, and operate solar power plants.

SBS entered into a contract to support the Big Desert solar power plant. According to the contract terms, SBS is responsible for the day-to-day operations of Big Desert as well as for general maintenance and repairs. Big Desert expects SBS to provide routine maintenance for continued operation of the plant and respond to equipment breakdowns and failures by providing immediate repairs. In addition, the terms of the contract require SBS to procure necessary materials to operate, maintain, and repair the plant. To comply with this requirement, the Company must maintain a certain level of materials and supplies (the âspare partsâ) at all times.

On a regular basis, SBS reviews a listing provided by Big Desert of recommended spare parts for various components of the solar power plant and procures the necessary parts. Vendors deliver the parts to SBS along with a complete listing describing the quantity and cost of the parts provided. SBS maintains this listing, uses it to track expected usage of the spare parts, and to determine their expected useful lives.

The spare parts consist of customized and generic parts that vary in cost, procurement time, expected usage (i.e., emergency replacement, standard replacement), and expected useful life. The Company uses the composite depreciation method for substantially all of the plant, and it expenses all major plant maintenance.

Required:

How should SBS classify the spare parts that it expects to use within one year: as inventory or as a prepaid/other current asset?

When answering the questions, please cite the appropriate literature to support your analysis. The

FASBâs professional literature is now organized by topic. It is referred to as the âAccounting Standards

Codification (ASC).â FASB statements are no longer authoritative GAAP, and therefore, you should not

cite them (unless you are making a point regarding the history of the standards.)

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ACCT 2230 Chapter Notes - Chapter 10: Unit, European Cooperation In Science And Technology, Unemployment Benefits

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