Atlantic Lighting Systems’s master budget and the actual results for the most re
ID: 2454497 • Letter: A
Question
Atlantic Lighting Systems’s master budget and the actual results for the most recent year of operating activity follow. Master Budget Actual Results Variances F or U Number of units 150,000 160,000 10,000 Sales revenue $33,000,000 $35,520,000 $2,520,000 F Variable manufacturing costs Materials (4,800,000) (5,300,000) (500,000) U Labor (4,200,000) (4,400,000) (200,000) U Overhead (2,100,000) (2,290,000) (190,000) U Variable selling, general, and admin. costs (5,250,000) (5,450,000) (200,000) U Contribution margin 16,650,000 18,080,000 1,430,000 F Fixed costs Manufacturing overhead (7,830,000) (7,751,000) 79,000 F Sellings, general, and admin. costs (6,980,000) (7,015,000) (35,000) U Net income $ 1,840,000 $ 3,314,000 $1,474,000
What are some qualitative consideration that might be helpful in employee performance evaluations?
Explanation / Answer
The qualitative considerations which need to be checked for employee performance evaluations are based pointwise, line wise, depending on the information given : (i) Marginal increase of 6.67% in number of units sold. (ii) Substantial increase in revenue, probably on account of better selling margins and negotiations with customers. (iii) Proportionately higher variable manufacturing costs, depending on the number of units sold. (iv) Huge labour costs which need to be controlled, in order to manage employee efficiency. (v) Marginal increase in overheads, commensurate with the increase in quantity sold. (vi) Similarly, marginal increase of 4% in Selling, General and Admin costs (variable) depending on quantity sold. (vii) Reduction in fixed manufacturing costs offset by an increase in fixed selling and admin costs. On an overall basis, the Company has done quite well. However, employee evaluations if based on the labour costs incurred, will be negative since the cost has increased by 4% against budgets, whereas the same should have been equal to or only slightly higher than the budget.
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