Developing Additional Variances for Performance Evaluation
Saidwell Company Manufactures WashersSaidwell's Material Variances Related to Part #4121 for December Were

Question

Developing Additional Variances for Performance Evaluation 
Saidwell Company Manufactures WashersSaidwell's Material Variances Related to Part #4121 for December Were

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The Answer is This problem is a good example of some of the many causes of materials price and quantity variances and how responsibility for the causes can be assigned.
Note:

\begin{array} { | l | l | r | r | } \hline ext { Price variance: } & & & \\hline ext { Purchase of } 4121 & 150,000 imes ( .325 - .285 ) & \$ 6,000 & \\hline ext { Substitution of } 5125 & 24,000 imes ( .35 - .285 ) & \underline{1,560} & \\hline & & \$ 7,560 & \cup \\hline\end{array}

\begin{array}{|c|r|r|r|}\hline ext { Quantity variance: } & & & \\hline ext { Standard usage } & & 153,300 & \\hline ext { Actual usage } & & & \\hline ext { required } & 134,000 & & \\hline 5125 s & \underline{24,000} & \underline{158,000} & \\hline ext { Excess usage } & & 4.700 & \\hline ext { Times standard price } & & \underline{ imes .285} & \\hline & & \$ 1.339 .50 & ext { unfav } \\hline\end{array}

a. Isolation of the materials price variance at the time of purchase is appropriate because it records the entire amount of the variance in the correct period. The claims of Bob Speck and Jim Buddle, however, are valid.
Speck is correct in stating that the price variance is misleading and does not measure his department's performance. Purchase discounts are price concessions obtained by the Purchasing Department for which the Purchasing Department should receive credit.
Buddle is correct in stating that the responsibility for the quantity variance should be shared. An analysis of increased quantities may indicate that there has been a purchase of inferior parts. This is the responsibility of the Purchasing Department. The substitution of materials to use up otherwise obsolete stock is the result of actions or decisions of Purchasing, Engineering, or both, and should be charged to the responsible department(s).
b. $This problem is a good example of some of the many causes of materials price and quantity variances and how responsibility for the causes can be assigned. Note: \begin{array} { | l | l | r | r | } \hline ext { Price variance: } & & & \ \hline ext { Purchase of } 4121 & 150,000 imes ( .325 - .285 ) & \$ 6,000 & \ \hline ext { Substitution of } 5125 & 24,000 imes ( .35 - .285 ) & \underline{1,560} & \ \hline & & \$ 7,560 & \cup \ \hline \end{array} \begin{array}{|c|r|r|r|} \hline ext { Quantity variance: } & & & \ \hline ext { Standard usage } & & 153,300 & \ \hline ext { Actual usage } & & & \ \hline ext { required } & 134,000 & & \ \hline 5125 s & \underline{24,000} & \underline{158,000} & \ \hline ext { Excess usage } & & 4.700 & \ \hline ext { Times standard price } & & \underline{ imes .285} & \ \hline & & \$ 1.339 .50 & ext { unfav } \ \hline \end{array} a. Isolation of the materials price variance at the time of purchase is appropriate because it records the entire amount of the variance in the correct period. The claims of Bob Speck and Jim Buddle, however, are valid. Speck is correct in stating that the price variance is misleading and does not measure his department's performance. Purchase discounts are price concessions obtained by the Purchasing Department for which the Purchasing Department should receive credit. Buddle is correct in stating that the responsibility for the quantity variance should be shared. An analysis of increased quantities may indicate that there has been a purchase of inferior parts. This is the responsibility of the Purchasing Department. The substitution of materials to use up otherwise obsolete stock is the result of actions or decisions of Purchasing, Engineering, or both, and should be charged to the responsible department(s). b. \begin{array} { | l | c | } \hline & ext { Units } \ \hline ext { Total spoilage } & 9.665 \ \hline ext { Normal spoilage } ( 153.300 imes 0.5 / 1.05 ) & \underline{7,300} \ \hline ext { Abnormal spoilage } & 2,365 \ \hline \end{array} c. The following areas would be responsible for the variances in Mike Kohl's system of variance analysis. While not specifically asked in the problem, one should question whether the additional complexity created by this new set of variances is justified. The proposed variances are confusing. Substantial training and retraining of the managers involved will be required. Moreover, these variances are a change in the performance evaluation system. What other parts of the organization structure are being changed? For example, is the performance reward system being changed to incorporate the new performance measures? Finally, Mr. Kohl's system fails the KISS test (Keep It Simple, Stupid).$

\begin{array} { | l | c | } \hline & ext { Units } \\hline ext { "Total spoilage } & 9.665 \\hline ext { Normal spoilage } ( 153.300 imes 0.5 / 1.05 ) & \underline{7,300} \\hline ext { Abnormal spoilage } & 2,365 \\hline\end{array}

c. The following areas would be responsible for the variances in Mike Kohl's system of variance analysis. $This problem is a good example of some of the many causes of materials price and quantity variances and how responsibility for the causes can be assigned. Note: \begin{array} { | l | l | r | r | } \hline ext { Price variance: } & & & \ \hline ext { Purchase of } 4121 & 150,000 imes ( .325 - .285 ) & \$ 6,000 & \ \hline ext { Substitution of } 5125 & 24,000 imes ( .35 - .285 ) & \underline{1,560} & \ \hline & & \$ 7,560 & \cup \ \hline \end{array} \begin{array}{|c|r|r|r|} \hline ext { Quantity variance: } & & & \ \hline ext { Standard usage } & & 153,300 & \ \hline ext { Actual usage } & & & \ \hline ext { required } & 134,000 & & \ \hline 5125 s & \underline{24,000} & \underline{158,000} & \ \hline ext { Excess usage } & & 4.700 & \ \hline ext { Times standard price } & & \underline{ imes .285} & \ \hline & & \$ 1.339 .50 & ext { unfav } \ \hline \end{array} a. Isolation of the materials price variance at the time of purchase is appropriate because it records the entire amount of the variance in the correct period. The claims of Bob Speck and Jim Buddle, however, are valid. Speck is correct in stating that the price variance is misleading and does not measure his department's performance. Purchase discounts are price concessions obtained by the Purchasing Department for which the Purchasing Department should receive credit. Buddle is correct in stating that the responsibility for the quantity variance should be shared. An analysis of increased quantities may indicate that there has been a purchase of inferior parts. This is the responsibility of the Purchasing Department. The substitution of materials to use up otherwise obsolete stock is the result of actions or decisions of Purchasing, Engineering, or both, and should be charged to the responsible department(s). b. \begin{array} { | l | c | } \hline & ext { Units } \ \hline ext { Total spoilage } & 9.665 \ \hline ext { Normal spoilage } ( 153.300 imes 0.5 / 1.05 ) & \underline{7,300} \ \hline ext { Abnormal spoilage } & 2,365 \ \hline \end{array} c. The following areas would be responsible for the variances in Mike Kohl's system of variance analysis. While not specifically asked in the problem, one should question whether the additional complexity created by this new set of variances is justified. The proposed variances are confusing. Substantial training and retraining of the managers involved will be required. Moreover, these variances are a change in the performance evaluation system. What other parts of the organization structure are being changed? For example, is the performance reward system being changed to incorporate the new performance measures? Finally, Mr. Kohl's system fails the KISS test (Keep It Simple, Stupid).$ While not specifically asked in the problem, one should question whether the additional complexity created by this new set of variances is justified. The proposed variances are confusing. Substantial training and retraining of the managers involved will be required. Moreover, these variances are a change in the performance evaluation system. What other parts of the organization structure are being changed? For example, is the performance reward system being changed to incorporate the new performance measures? Finally, Mr. Kohl's system fails the "KISS" test (Keep It Simple, Stupid).

Developing Additional Variances for Performance Evaluation Saidwell Company Manufactures Washers

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Developing Additional Variances for Performance Evaluation
Saidwell Company Manufactures Washers