Swimmingly Corp. buys raw fish, cooks and processes it, and then cans it in single-portion containers. The canned fish is sold to several wholesalers, who specialize in providing food to school lunch programs in the northwest United States and western Canada. All processing is conducted in the firm’s highly automated plant in Portland, Oregon. Amir Rigera, the production manager, is evaluated on the basis of a comparison of actual costs to standard costs. Only variable costs that Rigera controls are included in the comparison. Fish cost is noncontrollable. Standard costs per pound of fish for 2010 follow.
Direct labor ......... $0.25
Repairs .......... 0.05
Maintenance ........ 0.30
Indirect labor ........ 0.05
Power ........... 0.10
For 2010, Swimmingly Corp. purchased 2.5 million pounds of fish and canned 1.5 million pounds. There were no beginning or ending inventories of raw, in-process, or canned fish for the year. Actual 2010 costs were:
Direct labor ........ $300,000
Repairs ........... 80,000
Maintenance ......... 325,000
Indirect labor ........ 77,500
Power .......... 157,500
a. Prepare a responsibility report for Rigera for 2010.
b. As his supervisor, evaluate Rigera’s performance based on the report in (a).
c. Rigera believes his 2010 performance is so good that he should be considered for immediate promotion to vice president of production operations. Do you agree? Discuss the rationale for your answer.
d. Do you believe that all of the costs shown on Rigera’s responsibility report are truly under his control? Discuss the rationale for your answer.