One of the variable production costs is the cost of steel. The standards for steel purchase prices and usage as setat the beginning of 2016 were: Standard priceof steel $25.00 perpound Standard quantity of steel percar 100 pounds per carData on actual steelpurchases for 2016 were: Actual cost ofsteel purchased andused $28,700,000 Actual pounds ofsteel purchase and used 1,210,000pounds Recall that budgeted production for the year was10,000 cars, while actual production was 11,000.

Required

1. Were total steel costs for 2016 greater orless than expected? By how much?

2. How much of a difference should have been observed dueto the production level being higher than expected? Howmuch difference is still unexplained?

3. The purchasing department is responsible for efficientlypurchasing as much steel as the production department needs. What was the average price per pound at which steelwas purchased? Did the purchasing department perform well?

4. The production department is responsible forefficiently using the steel to produce the necessary level ofoutput. What was the average number of pounds of steel usedto produce each car in 2016? Did the productiondepartment perform well?

5. At the end of the year a cash bonus of 5% ofperformance above expectations is split among the members ofthe relevant departments. Performance above expectations is definedin terms of impact on total profits. What was the impactof the production department’s production activities on thecompany’s overall profits? What was the impact of thepurchasing department’s activities on the company’s overallprofits? Which department if any will receive a bonus? What size will that bonus pool be?

6. Are there any caveats in the performanceevaluation mechanism used in question 5?

Answer rating: 100% (QA)

Answer Steel Cost Analysis for Shamrock Inc 2016 1 Total Steel Costs Expected cost standard price standard quantity budgeted production 25pound 100 po... View the full answer