Hartz Mountain Inc. manufactures small industrial tools and has an annual sales volume of approximately $3.5 million. Sales growth has been steady during the year and there is no evidence of cyclical demand. The company’s market has expanded only in response to product innovation; therefore, R&D is very important to the company. Janice Bennett, controller, has designed and implemented a new budget system. An annual budget has been prepared and divided into 12 equal segments to use for monthly performance evaluations. The vice president of operations was upset upon receiving the following responsibility report for the Machining Department for October 2000:
MACHINING DEPARTMENT—RESPONSIBILITY REPORT FOR THE MONTH ENDED OCTOBER 31, 2000
|
Budget |
Actual |
Variance |
|
|
Volume in units |
3,000 |
3,185 |
185F |
|
Variable manufacturing costs: |
|||
|
Direct material |
$24,000 |
$24,843 |
$ 843U |
|
Direct labor |
27,750 |
29,302 |
1,552U |
|
Variable factory overhead |
33,300 |
35,035 |
1,735U |
|
Total |
$85,050 |
$89,180 |
$4,130U |
|
Fixed manufacturing costs: |
|||
|
Indirect labor |
$3,300 |
$3,334 |
$ 34U |
|
Depreciation |
1,500 |
1,500 |
0 |
|
Tax |
300 |
300 |
0 |
|
Insurance |
240 |
240 |
0 |
|
Other |
930 |
1,027 |
97U |
|
Total |
$6,270 |
$6,401 |
$ 131U |
|
Corporate costs: |
|||
|
Research and development |
$2,400 |
$3,728 |
$1,328U |
|
Selling and administration |
3,600 |
4,075 |
475U |
|
Total |
$6,000 |
$7,803 |
$1,803U |
|
Total costs |
$97,320 |
$103,384 |
$6,064U |
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 variances of the Machining Department 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? (CMA adapted)