Question

SolarPrime, Inc. uses a standard- costing system to assist in the evaluation of operations. The company has had considerable trouble in recent months with suppliers and employees, so much so that management hired a new production supervisor, Marc Hoctor. The new supervisor has been on the job for five months and has seemingly brought order to an otherwise chaotic situation. The vice president of manufacturing recently commented that “...Hoctor has really done the trick. The change to a new direct-material supplier and Hoctor’s team-building/morale-boosting training exercises have truly brought things under control.” The VP’s comments were based on both a plant tour, where he observed a contented work force, and a review of a performance report. Included in the report were the following variances: direct material, $ 4,620 favorable; and direct labor, $ 6,175 favorable. These variances are especially outstanding, given that the amounts are favorable and small. (SolarPrime’s budgeted material and labor costs generally each average about $ 350,000 for similar periods.) Additional data follow:
The company purchased and consumed 45,000 pounds of direct material at $ 7.70 per pound, and paid $ 16.25 per hour for 20,900 direct-labor hours of activity. Total completed production amounted to 9,500 units.
A review of the firm’s standard cost records found that each completed unit requires 4.2 pounds of direct material at $ 8.80 per pound and 2.6 direct- labor hours at $ 14 per hour.

Required:
1. On the basis of the information contained in the performance report, should SolarPrime’s management be concerned about its variances? Why?
2. Calculate the company’s direct- material variances and direct-labor variances.
3. On the basis of your answers to requirement (2), should SolarPrime’s management be concerned about its variances? Why?
4. Are things going as smoothly as the vice president believes? Evaluate the company’s variances and determine whether the change to a new supplier and Hoctor’s team- building/morale-boosting training exercises appear to be working. Explain.
5. Is it possible that some of the company’s current problems lie outside Hoctor’s area of responsibility? Explain.


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  • CreatedApril 22, 2014
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