Reference no: EM133100273
Question - HOME Sweet Company is a manufacturer of furniture and has an annual sale of RM12 million. It has four major products: bookcases, wardrobe, kitchen racks and wing chairs. Production is spread evenly over the year. Each product is managed by a production manager.
HOME Sweet Company uses a standard-costing system and applies variable overhead on the basis of machine hours. Fixed production cost is allocated on the basis of square footage occupied using a predetermined plant-wide rate; the size of the space occupied varies considerably among the product lines. All other costs are assigned on the basis of revenue dollars earned. At the monthly meeting to review April performance, Tuan Atan, manager of the bookcase line, receive the following report.
HOME Sweet Company - Bookcase Production Performance Report for the Month of April
|
Actual
|
Budget
|
Variance
|
|
|
Units
|
3,000
|
2,500
|
500
|
F
|
|
RM
|
RM
|
RM
|
|
|
Revenue
|
150,000
|
135,000
|
15,000
|
F
|
|
|
|
|
|
|
Variable product costs:
|
|
|
|
|
|
Direct material
|
23,100
|
20,000
|
3,100
|
U
|
|
Direct labour
|
18,300
|
15,000
|
3,300
|
U
|
|
Machine overhead
|
41,000
|
35,000
|
6,000
|
U
|
|
Fixed production costs:
|
|
|
|
|
|
Indirect labour
|
9,400
|
6,000
|
3,400
|
U
|
|
Depreciation
|
5,500
|
5,500
|
--
|
|
|
Property taxes and insurance
|
6,900
|
6,800
|
100
|
U
|
|
Other fixed costs allocated:
|
|
|
|
|
|
Administrative expenses
|
12,000
|
9,000
|
3,000
|
U
|
|
Marketing expenses
|
8,300
|
7,000
|
1,300
|
U
|
|
Research and development
|
6,000
|
4,500
|
1,500
|
U
|
|
Total expenses
|
130,500
|
108,800
|
21,700
|
U
|
|
|
|
|
|
|
Operating income
|
19,500
|
26,200
|
6,700
|
U
|
While distributing the monthly reports at the meeting, Miss Alia, the financial controller of remarked that: "Tuan Atan, we need to talk about getting your division back on track. Be sure to see me after the meeting."
Tuan Atan had been so convinced that his division did reasonably well in April that Miss Alia's remark was a real surprise. He tried to figure out what could have gone wrong. The monthly performance report was no help.
Required -
a) Identify three weaknesses in HOME Sweet Company's monthly bookcase production performance report.
b) Recommend how the report could be improved to eliminate weaknesses and revise it accordingly.
c) Discuss how the recommended changes in reporting are likely to affect Tuan Atan's behaviour.