Chad Bentley, president of Sabrin Corporation, evaluated the performance report of the company's production department. Mr. Bentley
Question:
Variances Amount
Materials usage variance............................ $240,000 U
Materials price variance............................... 196,000 F
Labor price variance.................................... 38,000 F
Labor usage variance.................................. 138,000 U
Volume variance....................................... 300,000 U
Ms. Dolan argued that she had done a great job, noting the favorable materials price variance and labor price variance. She argued that she had no control over factors causing the unfavorable variances. For example, she argued that the unfavorable materials usage variance was caused by the purchasing department's decision to buy substandard materials that resulted in a substantial amount of spoilage. Moreover, she argued that the unfavorable labor usage variance resulted from the substantial materials spoilage which in turn wasted many labor hours, as did the hiring of under qualified workers by the manager of the personnel department. Finally, she said that the sales department's failure to obtain a sufficient number of customer orders really caused the unfavorable volume variance.
Required
a. What would you do first if you were Chad Bentley?
b. Did Ms. Dolan deserve the credit she claimed for the favorable variances? Explain.
c. Was Ms. Dolan responsible for the unfavorable variances? Explain.
d. Explain how a balanced scorecard can be used to improve performance evaluation.
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Related Book For
Fundamental Managerial Accounting Concepts
ISBN: 978-1259569197
8th edition
Authors: Thomas Edmonds, Christopher Edmonds, Bor Yi Tsay, Philip Olds
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