แปลหน้า 369-375
Performance Evaluation
consider how the choice among normal capacity utilization, master–
budget capacity utilization,and practical capacity affects how a
company evaluates its marketing manager. Normal capacity
utilization is often used as a basis for long-run plans. Normal
capacity utilization depends on the time span selected and the
forecasts made for each year. However, normal capacity
ation is an average that provides no meaningful feedback to the
marketing manager for a icular year. Using normal capacity
utilization to judge current performance of a marketing
ager is an example of a company misusing a long-run measure for a
short-run purpose. The company should use master-budget capacity
utilization, rather than normal capacity utiliztion or practical capacity,
to evaluate a marketing manager’s performance in the current year
heraus the master budget is the principal short-run planning and
control tool. Managers feel more obligated to reach the levels
specified in the master budget, which the company should
e carefully set in relation to the maximum opportunities for sales in
the current year.
When large differences exist between practical capacity and
master-budget capacity utilization several companies (such as Texas
Instruments, Polysar, and Sandoz) classify the difference as planned
unused capacity. One reason for this approach is performance
evaluation. Consider our Stassen telescope example. The managers
in charge of capacity planning usually do not make pricing decisions.
Top management decided to build a production facility with 12,000
units of practical capacity, focusing on demand over the next five
years. But Stassen’s marketing managers, who are mid-level
managers, make the pricing decisions. These marketing managers
believe they should be held accountable only for the manufacturing
overhead costs related to their potential customer base in 2017. The
master-budget capacity utilization suggests a customer base in 2017
of 8,000 units (2/3 of the 12,000 practical capacity). Using
responsibility accounting principles (see Chapter 6, pages 237–240),
only 2/3 of the budgeted total fixed manufacturing costs ($1,080,000
X 2/3) would be attributed to the fixed capacity costs of meeting
2017 demand. The remaining 1/3 of the numerator ($1,080,000 X 1/3
= $360,000) would be separately shown as the capacity cost of
meeting increases in long-run demand expected to occur beyond
2017:
Financial Reporting
The magnitude of the favorable/unfavorable production-volume
variance under absorption costing is affected by the choice of the
denominator level used to calculate the budgeted fixed
manufacturing cost per unit. Assume the following actual operating
information for Stassen in 2017:
Beginning inventory
0
Production
8,000
units
Sales
6,000
units
Ending inventory
2,000
units
Selling price
$ 1,000
per unit
Variable manufacturing cost
$ 200
per unit
Fixed manufacturing costs
$ 1,080,000
Variable marketing cost
$ 185
per unit sold
Fixed marketing costs
$ 1,380,000
Note that this: that this is the same data used to calculate the
income under variable and absorption costing for Stassen in Exhibit
9-1. As before, we assume that there are no price, spending, or
efficiency variances in manufacturing costs.
RecaIl from Chapter 8 the equation used to calculate the production–
volume variance:
= = (budgeted
fixed
manufacturing
overhead ) – (Fixed manufacturing overhead allocated using
budgeted cost per output unit
allowed for actual output produced )
The four different capacity-level concepts result in four different
budgeted fixed manufacturing overhead cost rates per unit. The
different rates will result fixed manufacturing overhead costs
allocated to the 8,000 units actually produced and different amounts
of production-volume variance. Using the budgeted fixed
manufacturing costs of $1,080,000 (equal to actual fixed
manufacturing costs) and the rates calculated on page 365 for
different denominator levels the production-volume variance
computations are as follows:
Production-volume variance (theoretical capacity) = $1,080,000
– (8,000 units X $60 per unit)
= $1,080,000 – 480,000
= $600,000 U
Production-volume variance (practical capacity) = $1,080,000
– (8,000 units X $90 per unit)
= $1,080,000 – 720,000
= $360,000 U
Production-
volume
variance
Production-volume variance (normal capacity utilization) = $1,080,00
– (8,000 units X $108 per unit)
= $1,080,000 – 864,000
= $216,000 U
Production-volume variance (master-budget capacity)
Utilization = $1,080,000 – (8,000 units X
$135 per unit)
= $1,080,000 – 1,080,000
= $0
How Stassen disposes of its production-volume variance at the end
of the fiscal year will determine the effect this variance has on the
company’s operating income. We now discuss the three alternative
approaches Stassen can use to dispose of the production-volume
variance. These approaches were first discussed in Chapter 4 (pages
149–153).
