Question

Check my work Carol Morgan manages the production division of Perez Corporation. Ms. Morgan's responsibility report for the month of August follows: Budget Actual variance Controllable costs Raw materials Labor Maintenance Supplies Total $22,560 8.918 3,900 2,550 $37,928 $27,260 13.568 5,500 1,450 $47,778 $4,700 U 4,650 U 1,600 U 1,100 F $9,850 U The budget had called for 4,700 pounds of raw materials at $4.80 per pound, and 4,700 pounds were used during August; however, the purchasing department paid $5.80 per pound for the materials. The wage rate used to establish the budget was $18.20 per hour. On August 1, however, it increased to $21.20 as the result of an inflation index provision in the union contract. Furthermore, the purchasing department did not provide the materials needed in accordance with the production schedule, which forced Ms. Morgan to use 100 hours of overtime at a $31.80 rate. The projected 490 hours of labor in the budget would have been sufficient had it not been for the 100 hours of overtime. In other words, 590 hours of labor were used in August. Required a. When confronted with the unfavorable variances in her responsibility report, Ms. Morgan argued that the report was unfair because it held her accountable for materials and labor variances that she did not control. Is she correct? b. Calculate the variances of the items Ms. Morgan's controlled during the period. Complete this question by entering your answers in the tabs below. Required A Required B When confronted with the unfavorable variances in her responsibility report, Ms. Morgan argued that the report was unfair because it held her accountable for materials and labor variances that she did not control. Is she correct or incorrect? < Required A Required B

Answer 1

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Perez Corporation
The statement is partially correct. As Carol Morgan manages the production division so she is not responsible for rate variance but she should be responsible for all the efficiency/yield related variances.
The variances are below.
Direct Material Yield Variance	Input required	Rate per unit	Amount
Budgeted Consumption at Budgeted cost	4,700.00	4.80	22,560.00	A
Actual Consumption at Budgeted cost	4,700.00	4.80	22,560.00	B
Direct Material Yield Variance (B-A)			-
Direct Material Yield Variance is zero. It means there is no wastage of direct materials and they are used as per budget.
Direct Labor Efficiency Variance
Budgeted Labor cost	490.00	18.20	8,918.00	D
Actual Labor cost at Budgeted rate	590.00	18.20	10,738.00	E
Efficiency Variance (E-D)			1,820.00	Unfavorable
Direct Labor Efficiency Variance is $ 1,820 because of extra 100 hours used. This is not the fault of production department but purchase department as they did not supply material in time.
Maintenance cost Variance			1,600.00	Unfavorable
Maintenance cost Variance is $ 1,600. This is fault of production department.
Supplies cost Variance			1,100.00	Favorable
Supplies cost Variance is $ 1,100. This is a favorable variance and credit should be given to production department.