GRV is a chemical processing company that produces sprays used by farmers to protect their crops. One
Question:
GRV is a chemical processing company that produces sprays used by farmers to protect their crops. One of these sprays is made by mixing three chemicals. The standard material cost details for 1 liter of this spray are as follows:
0.4 liters of chemical A @ £30 per liter | £12.00 |
0.3 liters of chemical B @ £20 per liter | £6.00 |
0.5 liters of chemical C @ £15 per liter | £7.50 |
The standard material cost of 1 liter of spray | £25.50 |
During August, GRV produced 1,000 liters of this spray using the following chemicals:
600 liters of chemical A costing £18,000
250 litres of chemical B costing £8,000
500 litres of chemical C costing £8,500
You are the Management Accountant of GRV and the Production Manager has sent you the following e-mail:
I was advised by our purchasing department that the worldwide price of chemical B had risen by 50%. As a result, I used an increased proportion of chemical A than is prescribed in the standard mix so that our costs were less affected by this price change.
Required
- Calculate the following operational variances:
- direct material mix and
- direct material yield
- Discuss the decision taken by the Production Manager.
- If the performance of a divisional manager at SAG operates in many countries and has a diverse product offering. With such complex and broad operations, there are invariably many factors that can affect the performance of a business sector or division. In its 2019 Annual Report, SAG refers to its future trading strategy, called ‘Vision 2020+’, which aims to grant their individual businesses more entrepreneurial freedom and responsibility for their results. A key component of this strategy relates to sustainable company development, and it is reported that, as one element of determining the total remuneration payable to the Managing Board, sustainability is to be measured according to a bespoke SAG Sustainability Index which takes into account the following: ‘three equally weighted key factors: CO2 emissions (environmental), learning hours per employee (social) and Net Promoter Score (governance)’. Presumably, these (or very similar) measures would also form part of the performance measurement system for divisional management. Throughout the 2019 Annual Report, the targets set under the Vision 2020+ program are outlined and reported upon. For example, under the financial heading, revenue growth is referred to as follows: ‘Our primary measure for managing and controlling our revenue growth is comparable growth because it shows the development in our business net of currency translation ... and port-folio effects.’
Required
- SAG falls short of target due to external factors such as an economic recession, should the manager be held accountable? And why?
How might the actual assessment of divisional performance differ in recessionary times?
Managerial Accounting Creating Value in a Dynamic Business Environment
ISBN: 978-0078025662
10th edition
Authors: Ronald Hilton, David Platt