Price and efficiency variances, benchmarking and ethics. Sunto Scientific manufactures GPS devices for a chain of retail
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Price and efficiency variances, benchmarking and ethics. Sunto Scientific manufactures GPS devices for a chain of retail stores. Its most popular model, the Magellan XS is assembled in a dedicated facility in Savannah, Georgia. Sunto is keenly aware of the competitive threat from smartphones that use Google Maps and has put in a standard cost system to manage production costs of the Magellan XS It has also implemented a justintime system so the Savannah facility operates with no inventory of any kind. Producing the Magellan XS involves combining a navigation system imported from Suntos plant in Dresden at a fixed price an LCD screen made of polarized glass, and a casing developed from specialty plastic. The budgeted and actual amounts for Magellan XS for July were as follows:
Magellan XS units produced Navigation systems cost Navigation systems used Polarized glass cost
Sheets of polarized glass used Plastic casing cost
Ounces of specialty plastic used Direct manufacturing labor costs Direct manufacturing laborhours
Budgeted Amounts
$
$
$
$
Actual Amounts
$
$
$
$
The controller of the Savannah plant, Jim Williams, is disappointed with the standard costing system
in place. The standards were developed on the basis of a study done by an outside consultant at the start of the year. Williams points out that he has rarely seen a significant unfavorable variance under this system. He observes that even at the present level of output, workers seem to have a substantial amount of idle time. Moreover, he is concerned that the production supervisor, John Kelso, is aware of the issue but is unwilling to tighten the standards because the current lenient benchmarks make his performance look good. Compute the price and efficiency variances for the three categories of direct materials and for direct manufacturing labor in July
Describe the types of actions the employees at the Savannah plant may have taken to reduce the accuracy of the standards set by the outside consultant. Why would employees take those actions? Is this behavior ethical?
If Williams does nothing about the standard costs, will his behavior violate any of the standards of ethical conduct for practitioners described in the IMA Statement of Ethical Professional Practice see Exhibit on page
What actions should Williams take? Williams can obtain benchmarking information about the estimated costs of Suntos competitors such as Garmin and TomTom from the Competitive Intelligence Institute CII Discuss the pros and cons of using the CII information to compute the variances in requirement
Related Book For
Cost Accounting A Managerial Emphasis
ISBN: 978-0133428704
15th edition
Authors: Charles T. Horngren, Srikant M. Datar, Madhav V. Rajan
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