Exam 5: Understanding the Management Process

Jones Enterprises manufactures three products, A, B, and C. During the month of May, Jones's production, costs, and sales data were as follows. Based on the above information, which one of the following alternatives should be recommended to Jones's management?

Fitzpatrick Corporation makes a product sold to garden centers. It recently has discovered it could sell this product, Xylo, at an earlier stage in the production process to another manufacturer. Current costs to complete 2,000 pounds of Xylo are $10 per pound. Xylo sells for $12 per pound. It could sell AlmostXylo when it is only 75% complete as to total cost for $8.50 per pound. If AlmostXylo is processed into Xylo, operating income would:

Reliance Aircraft Corporation currently manufactures a complex hydraulic valve that controls rudder movement in its popular 707 jet aircraft. The unit cost to produce the valve is: Reliance has an offer from Kennametal Company to supply all 200 of the valves Reliance requires annually for $4,000 per unit. If Reliance accepts the offer and ceases production of the valve, production workers and supervisors will be reassigned to other areas of 707 production. The equipment can't be used elsewhere and has no market value. The factory floor space devoted to the production of the valves, however, can be used by another division of the company that currently leases space elsewhere at an annual cost of $85,000. What is the financial advantage (or disadvantage) to Reliance of accepting Kennametal's offer?

The material price variance is always computed based on the standard quantity of material allowed for the actual rate of output achieved.

JD's Sporting Products, Inc., is a distributor of both tennis and golf equipment. Currently, the golf equipment takes up 50% of the floor space in the company's distribution center. The CEO is considering whether the company should discontinue the golf equipment line and focus on tennis equipment. The table below contains the most recent income statement by product line. If the golf equipment line is discontinued, all salaries and other direct fixed costs can be avoided. In addition, sales of tennis equipment can be increased by 15% with no impact on direct fixed costs. The common fixed costs have been allocated to the two product lines based on relative sales, and all will continue whether the golf line is dropped or retained, and will continue at their present levels if tennis sales expand by as much as 15%. Required: Perform an incremental analysis to determine the financial advantage or disadvantage for dropping the golf equipment line.

Racemark Corporation produces taillight lenses for a number of automobile manufacturers. A production scheduling problem in April required the use of 500 hours of labor on an overtime basis in addition to the 14,000 standard hours allowed for the number of lenses actually produced in April. As a result of the overtime premium, the actual average wage rate for April was $32 compared to the standard rate of $25. What was the labor rate variance for April?

LaBelle Corporation has assembled the data below regarding one of the raw materials used in its manufacturing process. Based on the data provided, compute the material usage variance for the period.

Of the following standards, which are developed using data on the performance of the firm's key competitors?

Keep It Safe, Inc., manufactures a popular protective case for mobile telephones. Each case requires 0.5 grams of a titanium alloy to provide necessary strength. The standard price of the alloy is $100 per gram. In the most recently concluded month, Keep It Safe purchased and used 2,000 grams of the alloy to produce 3,800 cases. The total cost of the alloy purchased was $210,000. What was the material price variance for the month?

Varney Corporation uses a solvent in its manufacturing process. The standard price established for the solvent is $2 per liter. A variance analysis for last month revealed an unfavorable price variance of $8,000 related to the purchase of 40,000 liters of this particular solvent. What actual price per liter did Varney pay for its purchases of the solvent last month?

Of the following techniques, which would allow management to assess performance against a number of standards simultaneously?

Best-in-class benchmarks are established with reference to the performance of firms in the same industry as the firm conducting the analysis.

A favorable variance will result in an increase in net income over what was originally planned.

A production scheduling error at Vanadium Alloy and Steel Company required two days of overtime to complete an order. This error will most likely be reflected in an unfavorable labor rate variance.

Trend analysis attempts to provide a better assessment of performance than gap analysis by:

The material usage variance quantifies the difference between the actual quantity of material used and the standard quantity allowed weighted by the standard price of the material.

A company had a total labor variance of $15,000 favorable and a labor efficiency variance of $18,000 unfavorable. The labor price variance was:

Caswell Company employs direct labor in two of its processing departments. Data regarding direct labor usage in the most recent period have been assembled and reported below. Required: Compute the rate and efficiency variances for each of the processing departments. Indicate whether each variance is favorable or unfavorable.

THE FOLLOWING QUESTIONS ARE BASED ON THE INFORMATION BELOW. Reliance Aircraft Corporation currently manufactures a complex hydraulic valve that controls rudder movement in its popular 707 jet aircraft. The unit cost to produce the valve is: Reliance has an offer from Kennametal Company to supply all 200 of the valves Reliance requires annually for $4,000 per unit. If Reliance accepts the offer and ceases production of the valve, production workers and supervisors will be reassigned to other areas of 707 production. The equipment cannot be used elsewhere and has no market value. The factory floor space devoted to the production of the valves, however, can be used by another division of the company that currently leases space elsewhere at an annual cost of $85,000. Which of the following costs is avoidable if Reliance accepts Kennametal's offer? -The depreciation on the equipment, the depreciation on the building, and the supervisory salaries are irrelevant to Reliance's decision because they are fixed.

Look Your Best, Inc., operates 30 dry cleaning stores in a large metropolitan area. Internal benchmarking could be useful in assessing the performance of one of these stores.