(Behavioral implications of standard costing) Contact a local company that uses a standard cost system. Make an appointment with a manager at that company to interview him or her on the following issues:
• The characteristics that should be present in a standard cost system to encourage positive employee motivation
• How a standard cost system should be implemented to positively motivate employees
• What “management by exception” is and how variance analysis often results in the use of management by exception
• How employee behavior could be adversely affected when “actual to standard” comparisons are used as the basis for performance evaluation Prepare a paper and an oral presentation based on your interview.
39. (Flexible budget, variances, and cost control) Overland Corp. planned to produce at the 8,000 unit level for its single type of product. Because of unexpected demand, the firm actually operated at the 8,800 unit level. The company’s flexible budget appears as follows:
|
6,000 units |
8,000 units |
10,000 units |
|
|
Overhead costs: |
|||
|
Variable |
$24,000 |
$32,000 |
$40,000 |
|
Fixed |
16,000 |
16,000 |
16,000 |
|
Total |
$40,000 |
$48,000 |
$56,000 |
Actual costs incurred in producing the 8,800 units:
|
Variable |
$34,320 |
|
Fixed |
16,400 |
|
Total |
$50,720 |
The production manager was upset because the company planned to incur $48,000 of costs and actual costs were $50,720. Prepare a memo to the production manager regarding the following questions.
a. Was it correct to compare the $50,720 to the $48,000 for cost control purposes?
b. Analyze the costs and explain where the company did well or poorly in controlling its costs.