ane thus superior to using just financial measures. What advice would you give T
ID: 2582177 • Letter: A
Question
ane thus superior to using just financial measures. What advice would you give Tungston Company for improving its performance measurement system? CP 23-3 Variance interpretation You have been asked to investigate some cost problems in the Assembly Department of Ru- thenium Electronics Co., a consumer electronics company. To begin your investigation, you have obtained the following budget performance report for the department for the last quarter Ruthenium Electronics Co.-Assembly Department Quarterly Budget Performance Report Standard Quantity at Actual Quantity at Standard Rates Standard Rates $157,500 297,500 $455,000 Variances 70,000 U 87,500 U 157,500 U Direct labor Direct materials $227,500 385,000 $612,500 The following reports were also obtained Ruthenium Electronics Co.-Purchasing Department Quarterly Budget Performance Report Actual Quantity at Standard Rates $437,500 Actual Quantity at Actual Rates Variance -$52,500F Direct materials $385,000 Ruthenium Electronics Co.-Fabrication Department Quarterly Budget Performance Report Standard Actual Quantity at Standard Rates Quantity Variances Quantity at Standard Rates $203,000 140,000 $343,000 $245,000 -$42,000 F Direct labor Direct materials $385,000 -$42,000 F Total You also interviewed the Assembly Department supervisor. Excerpts from the interview follow : What explains the poor performance in your department? sten, you've got to understand what it's been like in this department recently. Lately, it seems no matter how we try, we can't seem to make the standards. I'm not sure what is going on, but we've been having a lot of problems lately. Q: What kind of problems? A: Well, for instance, all this quarter we've been requisitioning purchased parts from the material storeroom, and parts just didn't fit together very well. I'm not sure what is going on, but during most of this quarter we've the material. And that's not all. Q Go on. A All this ral d and sort purchased parts-just to get our assemblies put together. Naturally, ll this takes time and (o of the stuff that cor es in from Fabrication just can't be assembled. The fabrication is all wrong. As a es it. d to scrap and rework a lot of the stuff Naturally, this has just shot our quantity variances quarter, the work that we'e been receiving from the Fabrication Department has been shoddy. Imean,maybe around supervisor,ret the variance reports in light of the comments by the Assembly DepartmentExplanation / Answer
Apparently there are two issues here:
1. The parts that are purchased are sub standard. That possibly explains why the actual price paid for the parts is less than the standard price, leading to a favorable materials price variance. It seems that the purchasing department's focus is on sourcing cheap materials, even if it means sacrificing the quality standards.
3. The fabrication department has reported a favorable direct labor variance. But the assembly department is complaining about the output of the fabrication department, saying that the work is ' shoddy'. The supervisor of the fabrication department should be asked whether there has been any change in the direct labor mix during the last quarter, i.e whether he is getting the work done by skilled workers or not.
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