Posted: April 10th, 2016

What department should bear the penalty?

Flexible budget preparation:
Tik-a-Lock, Inc., manufactures travel locks. The budgeted selling price is $18 per lock, the variable cost is $12 per lock, and budgeted fixed costs are $12,000.

1. Prepare a flexible budget for output levels of 6,000 locks and 9,000 locks for the month ended April 30, 2011.

You have been asked to prepare an analysis of the overhead costs in the order processing department of a mail-order company like Harriet Carter Corporation. As an initial step, you prepare a summary of some events that bear on overhead for the most recent period. Variable overhead is applied based on hours of processing-clerk labor. The standard variable-overhead rate per order was $.06. The rate of 10 orders per hour is regarded as standard productivity per clerk. The total overhead incurred was $203,600, of which $135,900 was fixed. The fixed-overhead spending variance was $400 unfavorable. The variable-overhead flexible-budget variance was $5,600 unfavorable. The variable-overhead spending variance was $3,000 favorable. Find the following:
1. Variable-overhead efficiency variance
2. Actual hours of input
3. Standard hours of input allowed for output achieved
4. Budgeted-fixed overhead

Beta Gamma Sigma, the business honor society, recently held a dinner dance. The original (static) budget and actual results were as follows:
Static Budget ACtual Variance
Attendees 75 90
Revenue $2625 $3255 $630F
Chicken dinners at $19 1425 1767 342U
Beverages, $6 per person 450 466 16U
Club rental, $75 plus 8% tax 81 81 0
Music, 3 hours at $250 per hour 750 875 125U
Profit (81) 66 $147F
1. Subdivide each variance into a sales-activity variance portion and a flexible budget variance portion.
2. Provide possible explanations for the variances.

9-A1 Responsibility of Purchasing Agent
Excel Electronics Company, a privately held enterprise, has a subcontract from a large aerospace company in Chicago. Although Excel was a low bidder, the aerospace company was reluctant to award the business to the company because it was a newcomer to this kind of activity. Consequently, Excel assured the aerospace company of its financial strength by submitting its audited financial statements. Moreover, Excel agreed to pay a penalty of $5,000 per day for each day of late delivery for whatever cause.

Margie McMahon, the Excel purchasing agent, is responsible for acquiring materials and parts in time to meet production schedules. She placed an order with an Excel supplier for a critical manufactured component. The supplier, who had a reliable record for meeting schedules, gave McMahon an acceptable delivery date. McMahon checked up several times and was assured that the component would arrive at Excel on schedule.

On the date specified by the supplier for shipment to Excel, McMahon was informed that the component had been damaged during final inspection. It was delivered ten days late. McMahon had allowed four extra days for possible delays, but Excel was six days late in delivering to the aerospace company and so had to pay a penalty of $30,000.

What department should bear the penalty? Why?

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