For your response post, you will be taking on the role of the manager and respond to your employee's memo. Inform the employee as to what specific managerial decisions, conclusions, and/or judgments can you make from the information provided in that memo.

To: Management

From: Fluvia Ramos

RE: Over budget & Production Dept

Management,

I see the following problem with the company's standard cost system and how the cost variances are assigned to the responsible manager. This special rush order for production to complete 120 cabinets was improperly calculated as standard. "Standard overhead cost per unit is based on an estimate of total overhead at the normal level of production" (Williams). Under normal circumstances, it would take 12 weeks to fulfill the cabinet order. This project was made under that time but costs of labor went up as overtime was needed. Labor variances for such rush orders need to be re-evaluated for such projects. The production manager should know what the overhead spending variance is the difference in regular labor and the overtime that will be needed for rush projects that will result in more overtime hours.

My recommendation is to make the direct labor hours as an activity based cost. " The rate expresses an expected relationship between overhead costs and some activity base related to the production process (direct labor hours, machine-hours, and so forth). Overhead application rate is determined at the beginning of the period and is based on estimated amounts" (Williams).