Question: Jasmin Sylvera is the manufacturing production
Jasmin Sylvera is the manufacturing production supervisor for Feynman Motor Works (FMW), a company that manufactures electrical motors for industrial applications. Trying to explain why she did not get the year-end bonus that she had expected, she told a friend, “This is the dumbest place I've ever worked. Last year the company set up this budget assuming it would sell 150,000 units. Well, it sold only 140,000. The company lost money and gave me a bonus for not using as much materials and labor as was called for in the budget. This year, the company has the same 150,000 units goal and it sells 160,000. The company’s making all kinds of money. You’d think I’d get a big bonus. Instead, management tells me I used more materials and labor than was budgeted. They said the company would have made a lot more money if I’d stayed within my budget. I guess I'll have to wait for another bad year before I get a bonus. Like I said, this is the dumbest place I've ever worked.â€
FMW’s master budget and the actual results for the most recent year of operating activity follow.
Required
1. Did FMW increase unit sales by cutting prices or by using some other strategy?
2. Is Ms. Sylvera correct in her conclusion that something is wrong with the company’s performance evaluation process? If so, what do you suggest be done to improve the system?
3. Prepare a flexible budget and recalculate the budget variances.
4.Explain what might have caused the fixed costs to be different from the amount budgeted.
5. Assume that the company’s materials price variance was favorable and its materials usage variance was unfavorable. Explain why Ms. Sylvera may not be responsible for these variances. Now, explain why she may have been responsible for the materials usage variance.
6. Assume the labor price variance is unfavorable. Was the labor usage variance favorable or unfavorable?
7. Is the fixed cost volume variance favorable or unfavorable? Explain the effect of this variance on the cost of each unit produced.
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