(Responsibility accounting reports) Hippolito Inc. manufactures industrial tools and has annual sales of approximately $3.5 million with no evidence of cyclical demand. R&D is very important to Hippolito because its market share expands only in response to product innovation.
The company controller has designed and implemented a new annual budget sys tem divided into 12 equal segments for use for monthly performance evaluations. The vice president of operations was upset upon receiving the following responsibility re port for the Machining Department for October 2010:
|
MACHINING DEPARTMENT |
|||
|
Responsibility Report |
|||
|
For the Month Ended October 31, 2010 |
|||
|
Budget |
Actual |
Variance |
|
|
Volume in units |
3,000 |
3,185 |
185 F |
|
|
|
|
|
|
Variable manufacturing costs |
|
|
|
|
Direct material |
$ 27,000 |
$ 28,028 |
$1,028 U |
|
Direct labor |
28,500 |
30,098 |
1,598 U |
|
Variable factory overhead |
33,300 |
35,035 |
1,735 U |
|
Total |
$ 88,800 |
$ 93,161 |
$4,361 U |
|
|
|
|
|
|
Fixed manufacturing costs |
|
|
|
|
Indirect labor |
$ 3,300 |
$ 3,334 |
$ 34 U |
|
Depreciation |
1,500 |
1,500 |
0 |
|
Property tax |
300 |
300 |
0 |
|
Insurance |
240 |
240 |
0 |
|
Other |
930 |
1,027 |
97 U |
|
Total |
$ 6,270 |
$ 6,401 |
$ 131U |
|
Corporate costs |
|
|
|
|
Research and development |
$ 2,400 |
$ 3,728 |
$1,328 U |
|
Selling and administration |
3,600 |
4,075 |
475 U |
|
Total |
$ 6,000 |
$ 7,803 |
$1,803 U |
|
Total costs |
$101,070 |
$107,365 |
$6,295 U |
a. Identify the weaknesses in the responsibility report for the Machining Department.
b. Prepare a revised responsibility report for the Machining Department that reduces or eliminates the weaknesses indicated in part (a).
c. Deviations in excess of 5 percent of budget are considered material and worthy of investigation. Should any of the Machining Department’s variances be investigated? Regardless of materiality, is there any area that the vice president of operations might wish to discuss with the manager of the Machining Department?