Question

Carol Morgan manages the production division of Munoz Corporation. Ms. Morgan's responsibility report for the month of August follows: Budget Actual Variance Controllable costs Raw materials Labor Maintenance Supplies Total $15,910 9,936 3.300 2,000 $31,146 $19,610 14,766 5.100 950 $40,426 $ 3.700 U 4,830 0 1.800 U 1.050 F 39.280 0 The budget had called for 3,700 pounds of raw materials at $4,30 per pound, and 3,700 pounds were used during August; however, the purchasing department paid $5.30 per pound for the materials. The wage rate used to establish the budget was $18.40 per hour On August 1, however, it increased to $21.40 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 $32 10 rate. The projected 540 hours of labor in the budget would have been sufficient had it not been for the 100 hours of overtime. In other words, 640 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.

Answer 1

a. Yes Mr. Morgan is correct because Mr Morgan Can not be held accountable for Material Labur Variance Because the material and Labour variance is exist due to higher procurement price of material as compare with Standard price and higher wages rate paid to labour as compare with Standard wages rate Rate Fixed , Which is the responsibility of Procurement department.

b. Computation of Variance that can be controlled by mr Morgan
	Budget	Actual	Variance
Maintainance	3300	5100	1800	UF
Supplies	2000	950	1050	F
	5300	6050	750	UF