Porter Pots (PP) Pte Ltd manufactures a single product (an earthen self-cooking pot) and uses a...

 

 

Transcribed Image Text:

Porter Pots ("PP") Pte Ltd manufactures a single product (an earthen self-cooking pot) and uses a standard costing system for control purposes. PP budgeted to produce and sell 14,000 units this year. The product uses material from a Middle East country. The manufacturing process requires skilled labour (mainly hired from a neighbouring country). The standard cost card (established before 4 years ago before the pandemic) for the product is as follows: Standard Cost Standard Cost Per Unit ($) Direct materials 500 grams @ $6.00 per kg 3.00 Direct labour (DL) 1.5 hours @ $18 per DLH* 27.00 Variable MOH Based on machine hours/unit 29.00 Fixed MOH 40.00 * DLH - Direct labour hours Some additional information for the year just ended: (i) (11) (111) (iv) A total of 13,000 units were manufactured and sold during the year. This was partly due to the slower than expected recovery of its markets. Total materials purchased and used during the year totalled 5,200 kg at a total cost of $41,600. There was no beginning direct material inventory for the year. The total direct labour cost incurred during the year was $390,000 for a total of 15,600 hours worked. During the pandemic, PP had trouble recruiting and training workers from its usual source due to movement restrictions. New workers had to be hired from another country but are better trained than workers from the usual source country. This is the first year PP is using workers from this alternative country. The budgeted and actual sales were $2,940,000 and $2,860,000 respectively. The production team is responsible for production efficiency which includes keeping raw material and labour variances within the threshold of 10% of standard costs set by the firm. However, workers are hired by their HR Department with production managers and supervisors involved in the interviewing process. The CFO is not happy with the performance of the production team for not exceeding the expected cost variance. She plans to recommend to the Board for all production staff to be awarded zero amount of bonuses for bad cost control. In fact, she thinks production staff should be severely punished for such poor performance. Required: (a) Compute and show ALL the possible sales and direct cost variances for the year based on the information given above. (15 marks) (b) (c) Write journal entries to record ALL costs variances computed in (a) above (narrations are not required). (12 marks) Discuss and explain if you agree with the CFO's assessment regarding the performance of all production staff (your discussion should include appropriateness of using standard costing for performance evaluation). In addition, comment on whether ALL production staff should be severely punished for the poor performance this year. (23 marks) Porter Pots ("PP") Pte Ltd manufactures a single product (an earthen self-cooking pot) and uses a standard costing system for control purposes. PP budgeted to produce and sell 14,000 units this year. The product uses material from a Middle East country. The manufacturing process requires skilled labour (mainly hired from a neighbouring country). The standard cost card (established before 4 years ago before the pandemic) for the product is as follows: Standard Cost Standard Cost Per Unit ($) Direct materials 500 grams @ $6.00 per kg 3.00 Direct labour (DL) 1.5 hours @ $18 per DLH* 27.00 Variable MOH Based on machine hours/unit 29.00 Fixed MOH 40.00 * DLH - Direct labour hours Some additional information for the year just ended: (i) (11) (111) (iv) A total of 13,000 units were manufactured and sold during the year. This was partly due to the slower than expected recovery of its markets. Total materials purchased and used during the year totalled 5,200 kg at a total cost of $41,600. There was no beginning direct material inventory for the year. The total direct labour cost incurred during the year was $390,000 for a total of 15,600 hours worked. During the pandemic, PP had trouble recruiting and training workers from its usual source due to movement restrictions. New workers had to be hired from another country but are better trained than workers from the usual source country. This is the first year PP is using workers from this alternative country. The budgeted and actual sales were $2,940,000 and $2,860,000 respectively. The production team is responsible for production efficiency which includes keeping raw material and labour variances within the threshold of 10% of standard costs set by the firm. However, workers are hired by their HR Department with production managers and supervisors involved in the interviewing process. The CFO is not happy with the performance of the production team for not exceeding the expected cost variance. She plans to recommend to the Board for all production staff to be awarded zero amount of bonuses for bad cost control. In fact, she thinks production staff should be severely punished for such poor performance. Required: (a) Compute and show ALL the possible sales and direct cost variances for the year based on the information given above. (15 marks) (b) (c) Write journal entries to record ALL costs variances computed in (a) above (narrations are not required). (12 marks) Discuss and explain if you agree with the CFO's assessment regarding the performance of all production staff (your discussion should include appropriateness of using standard costing for performance evaluation). In addition, comment on whether ALL production staff should be severely punished for the poor performance this year. (23 marks)