978-0077733773 Chapter 14 Solution Manual Part 5

subject Type Homework Help
subject Pages 9
subject Words 2051
subject Authors David Stout, Edward Blocher, Gary Cokins, Paul Juras

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Chapter 14 - Operational Performance Measurement: Sales, Direct-Cost Variances, and the Role of Nonfinancial
Performance Measures
14-42 JIT and Process Cycle Time Efficiency (PCE) (45-50 minutes)
1. The terms “value-added” and non-value-added” are defined from the perspective of
the customer (i.e., an external perspective is taken). Because the perspective is
external, the notions of “value-added” vs. “non-value-added” are not strictly or
uniquely defined. The key question in classifying activities is whether the consumer
would “pay” for the activity. This is one way to operationalize the two terms. We note
here in passing that these terms are derived from the literature of activity-based
costing (ABC). The purpose of this part of question #1 is to have students think about
the difference between an internal and an external perspective when developing
appropriate performance indicators (metrics).
With an understanding of the terms “value-added” and “non-value-added,” the
student is now in a position to understand the notion of “processing cycle efficiency
2. Cycle time is the total time required from the start of production to completion of
outputs. Process (or processing or manufacturing) time represents the time actually
required for processing. As such, process time excludes waiting time, storage time,
moving time, set-up time, and inspection time, all of which can be considered “non-
value-added” from the standpoint of the customer.
As shown in text Exhibit 14.14, we might begin by defining Customer Response
Time (CRT), as the difference between when a customer places an order and when
that order is completed), and delivery time (time between when an order is completed
and when that order is received by the customer). As shown in Exhibit 14.14, we
might further break-down manufacturing lead (cycle) time into waiting time and
manufacturing (or, production cycle) time. Finally, manufacturing time can be
decomposed into the elements reflected above in the formula for PCE.
14-41
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Performance Measures
14-42 (Continued)
3. Processing Cycle Efficiency (PCE), Pre-JIT:
PCE = 1.0 hr. ÷ (1.0 hr. + 1.0 hr. + 0.50 hr. + 0.75 hr.)
Processing Cycle Efficiency (PCE), Post-JIT Implementation:
PCE = 0.50 hr. ÷ (0.50 hr. + 20/60 hr. + 15/60 hr. + 15/60 hr.)
4. Percentage Improvement, Pre-JIT versus Post-JIT Implementation:
% change = (0.3750 − 0.3077) ÷ 0.3077 = 22% (actual amount is 21.87%)
5. The move to a JIT manufacturing process should be accompanied by improvements
in quality, reductions in waste and inefficiencies, reduction in inventories held,
improvements in cycle times (and customer response time, CRT), and, perhaps,
increases in sales. These expectations suggest the following non-financial
performance indicators be monitored and reported to management by the
organization’s management accounting and control system:
Supplier-Related Measures
lead time from placement of order (for raw materials) and receipt of such
incoming inspections)
Production-Related Measures
14-42 (Continued)
14-42
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Chapter 14 - Operational Performance Measurement: Sales, Direct-Cost Variances, and the Role of Nonfinancial
Performance Measures
% capacity utilization (i.e., managing the supply of resource capacity)
actual production as % of planned production
Distribution Activities
% of items delivered with no (zero) defects
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PROBLEMS
14-43 Master Budget, Flexible Budget, and Profit-Variance Analysis; Spreadsheet
Application (75-90 minutes)
1.
Flexible- Sales Master
Actual Budget Flexible Volume (Static)
Results Variances Budget Variance Budget
Unit sales 4,000 0 4,000 100F 3,900
Sales $390,000 $10,000U $400,000 $10,000F $390,000
Variable Costs:
Manufacturing $241,000 $41,000U $200,000 $5,000U $195,000
Marketing $39,000 $1,000F $40,000 $1,000U $39,000
Total Variable Costs $280,000 $40,000U $240,000 $6,000U $234,000
CM $110,000 $50,000U $160,000 $4,000F $156,000
Fixed Costs:
Manufacturing $50,000 $0 $50,000 $0 $50,000
Marketing $40,000 $4,000U $36,000 $0 $36,000
Total Fixed Costs $90,000 $4,000U $86,000 $0 $86,000
$54,000U $4,000F
2. Profit-variance components:
a. total master (static) budget variance = actual operating income master
c. total variable cost flexible-budget variance = actual total variable costs
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Chapter 14 - Operational Performance Measurement: Sales, Direct-Cost Variances, and the Role of Nonfinancial
Performance Measures
14-43 (Continued-1)
2. flexible-budget variance for variable nonmanufacturing costs = actual
1. flexible-budget variance for fixed manufacturing costs = actual fixed
2. flexible-budget variance for fixed nonmanufacturing costs = actual fixed
3. Interpretation of profit variances:
a. total master (static) budget variance: this is the total operating-profit variance
for the period, i.e., the difference between actual operating profit and operating
profit as stated in the master (static) budget. Notice that this variance is a function
explained below.
variance can be broken be calculating a flexible-budget variance for each
variable cost (e.g., by functional category).
1. flexible-budget variance for total variable manufacturing costs: this variance
represents the portion of the flexible-budget variance that is attributable to
14-45
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Chapter 14 - Operational Performance Measurement: Sales, Direct-Cost Variances, and the Role of Nonfinancial
Performance Measures
14-43 (Continued-2)
2. flexible-budget variance for total variable nonmanufacturing costs: this
variance represents the portion of the flexible-budget variance that is
attributable to nonmanufacturing cost per unit being different from budgeted
1. flexible-budget variance for total fixed manufacturing costs: this is the
portion of the flexible-budget variance for total fixed costs that is attributable
attributable to spending on nonmanufacturing fixed costs being different from
budgeted spending. As such, this variance can be further broken down on a
line-item basis (i.e., sales salaries, depreciation, etc.).
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Chapter 14 - Operational Performance Measurement: Sales, Direct-Cost Variances, and the Role of Nonfinancial Performance Measures
14-43 (Continued-3)
Ortiz & Co.
Master (Static) Budget Variance
(Actual Operating Income Master Budget Operating Income)
$50,000U
Total FB-Variance Sales Volume Variance
$54,000U $4,000F
($20,000 − $74,000) ($40/unit × 100 units)
SP Variance Variable Cost Variances Fixed Cost Variances
$10,000U $40,000U $4,000U
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Chapter 14 - Operational Performance Measurement: Sales, Direct-Cost Variances, and The Role of
Nonfinancial Performance Measures
14-43 (Continued-4)
Note to Instructor: An Excel file solution covering parts (1) and (2) of this assignment is
embedded below. You can open this “object” by doing the following:
1. Right click anywhere in the worksheet area below.
2. Select “worksheet object” and then select “Open.”
3. To return to the Word document, select “File” and then “Close and return
to...” while you are in the spreadsheet mode. The screen should then
return you to this Word document.
Pr. 14-43 7e.xlsx
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Chapter 14 - Operational Performance Measurement: Sales, Direct-Cost Variances, and The Role of
Nonfinancial Performance Measures
14-44 Materials Purchase-Price Variance and Foreign Exchange Rates (20-30
minutes)
1. Actual Results
Actual Purchase Standard
Price
Quantity Price Total Cost Price/kg. Variance
1st Quarter 5,000 $68.00 $ 340,000 $60 $ 40,000U
2nd Quarter 5,000 69.00 345,000 60 45,000U
3rd Quarter 5,000 74.00 370,000 60 70,000U
*Total actual purchases = 40,000 kg. × $50 avg. price/kg. = $2,000,000
**$2,000,000 − ($340,000 + $345,000 + $370,000) = $945,000
***$945,000 25,000 = $37.80/kg.
Further analysis of the 4 th
Quarters materials purchase-price variance:
Price variance due to increase in the negotiated price:
2. The favorable materials purchase-price variance for the 4th quarter and for
the year is due to fluctuations in foreign currency exchange rates. The firm
gained $980,000 from the favorable changes in currency exchange rates.
Without the favorable exchange rate in the 4th quarter, the firm would have
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Chapter 14 - Operational Performance Measurement: Sales, Direct-Cost Variances, and The Role of
Nonfinancial Performance Measures
14-45 Direct Materials: Joint Price-Quantity Variance (30-45 minutes)
1. Direct materials price variance = AQ × (AP − SP)
2. Standard direct materials allowed for the units manufactured, SQ:
3. “Pure” direct materials price variance = SQ × (AP − SP)
= 25,000 tons × ($12 − $10)/ton = $50,000U
Direct materials joint price-quantity variance = (AP − SP) × (AQ − SQ)
The preceding calculations are illustrated graphically below:
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