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Hi Dear Tutor, I have questions
Glove Co(past exam paper 2016 june)
No-one told the accountant responsible for updating standard costs that the standard time per pair of gloves needed to be changed. Similarly, although all workers were given a 2% pay rise at the beginning of the last quarter, the accountant was not told about this either.
Labor rate operational variance-3570A
Labor efficiency operational -55300FExplanation:
labor rate operational variance is adverse.this means that the production manager did have to pay for some overtime in order to meet demand (I understand this part as it is because of the manager)but the majprity of the total labor rate variance is driven by the failure to update the standard for the pay rise that was applied at the start of the last quarter –here if accountant was not informed about updating the standard cost card is it considered operational or planning?
Su co ( March/June 2017)
The production manager is responsible for all purchasing and production issues. Su co uses standard costing and usually, every time a design change take place , the standdard cost card is updated prior to production commencing. However, the company accountant responsible for updating the standards has been sick off for the last two months
Explanation:
the production manager did not have any control over the change in the design of the dress as this change was requested by the client. Similary, it was not their fault that the company accountant responsible for updating standard costs was off sick and therefore unable to update the standards. the production manager should be judged by those variances over which they have control which are the operational variances.
Here it is totally understandable I understand everything as it has already mentioned in the situation. For glove co, the situation is different from Su co,
my question is if anything about updating standard cost is related to not being told to accountant or becoming off accountant sick, is this considered in general planning variance?
It is of no relevance whether or not the accountant had been told at the time.
The total variance is from comparing the actual with the original standards. When we come to analyse it between planning and operational, the planning variances are comparing the revised costs due to permanent changes with the original standards and the operation variances are comparing the actual with the revised standards.
let us assume if the standard cost card updated in two example by the accountant then what would be then?would the fault be made by the production manager in general?
It is of no relevance whether or not the accountant had been told at the time.-then in the second explanation it says it is the responsibility of the accountant?
I know how it is calculated I need the point behind this reason
It does not matter whether the standards had been updated in advance or not.
When measuring the performance of the operational managers (in this case the production manager) it is not fair to compare actual with the original standards. We should compare with the updated/revised standards to see whether or not he is doing his job properly.
The fact that there were planning variances means that the original standards were wrong. But that is in the past. (We know it was because the accountant was off sick. In other cases it may. be because he did things wrong in which case we either sack him or we teach him how to do things better next time).
However as the answer says, in the case of this question the planning variances can be ignored.
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