CHAPTER 11 DISCUSSION QUESTIONS 11-1 Q11-1. Yes, to the extent that it is practical to meas- ure the value added or the productivity of a worker. However, measurement of the contri- bution of each individual is never exact. Also, a business cannot pay more for materials or labor than the sales price will recover. Materials, workers, and machines produce products and services. There must be a differ- ence between revenue and costs consumed; otherwise, the business cannot survive. Q11-2. Productivity may be defined as the measure- ment of production performance using the expenditure of human effort as a yardstick. In a broader sense, it may be described as the efficiency with which resources are converted into commodities and/or services that people want. Q11-3. Productivity is important to a firm because high productivity reduces the unit cost of the output and makes the firm more competitive. It is important to workers because their real earnings should be increased when produc- tivity is high. Productivity is important to soci- ety because increased productivity enables society to get more and better output from the basic resources of the economy. Q11-4. To measure labor efficiency, it is necessary to establish a standard of performance. This means determining how much a worker should be able to produce, or how much a work crew should be able to produce. The standard is determined by time and motion study, test runs by skilled workers, and aver- ages of past performance by skilled workers. Q11-5. The purpose of an incentive wage plan is to induce a worker to produce more, resulting in a higher wage and reduced conversion cost per unit. Frequently, machine output is limited by worker performance. If employee perform- ance can be increased, machine cost per unit of production will decrease. An incentive wage plan may also reduce loafing, indiffer- ence, and carelessness, and may generate a cost-conscious labor force. Q11-6. Generally, hourly earnings go up with increased production, and labor cost per unit of output is reduced. High production rates also reduce overhead cost per unit of output, which is often the most significant savings. Q11-7. (a) During periods of curtailed activity, it is just as necessary to keep costs down as it is when operating at full capacity. Assuming that the incentive wage plan resulted in greater labor efficiency and lower costs per unit at full capacity, then the labor cost per unit should be lower in a slack period if the incentive wage scale is continued. A shorter workweek or some other system of sharing the work would be indicated. (b) Ordinarily, it is not a propitious time to ini- tiate an incentive wage plan when a plant is operating far below capacity, because the worker is already fearful of something less than full employment. If a reasonable day’s work is being received for the going rate of pay, postponement of the incentive plan is indicated. However, there is a nat- ural tendency for workers to reduce output during such periods, thereby increasing costs, with a tendency to bring about fur- ther reduction in the volume that can be sold. With full explanation and under- standing of the situation, the incentive wage could be introduced with a plant operating at 60% capacity. Q11-8. In the straight piecework plan, each worker is paid a certain amount for each unit produced, while being guaranteed a base hourly wage. In the 100% bonus plan, each worker is paid for the standard time to complete the job or units if the job or units are finished in standard time or less. In the group bonus plan, workers in a group are paid their standard hourly wage. If the group produces units in excess of the standard, the workers are paid for the time saved.
Transcript
CHAPTER 11
DISCUSSION QUESTIONS
11-1
Q11-1. Yes, to the extent that it is practical to meas-ure the value added or the productivity of aworker. However, measurement of the contri-bution of each individual is never exact. Also,a business cannot pay more for materials orlabor than the sales price will recover.Materials, workers, and machines produceproducts and services. There must be a differ-ence between revenue and costs consumed;otherwise, the business cannot survive.
Q11-2. Productivity may be defined as the measure-ment of production performance using theexpenditure of human effort as a yardstick. Ina broader sense, it may be described as theefficiency with which resources are convertedinto commodities and/or services that peoplewant.
Q11-3. Productivity is important to a firm becausehigh productivity reduces the unit cost of theoutput and makes the firm more competitive.It is important to workers because their realearnings should be increased when produc-tivity is high. Productivity is important to soci-ety because increased productivity enablessociety to get more and better output from thebasic resources of the economy.
Q11-4. To measure labor efficiency, it is necessary toestablish a standard of performance. Thismeans determining how much a workershould be able to produce, or how much awork crew should be able to produce. Thestandard is determined by time and motionstudy, test runs by skilled workers, and aver-ages of past performance by skilled workers.
Q11-5. The purpose of an incentive wage plan is toinduce a worker to produce more, resulting ina higher wage and reduced conversion costper unit. Frequently, machine output is limitedby worker performance. If employee perform-ance can be increased, machine cost per unitof production will decrease. An incentivewage plan may also reduce loafing, indiffer-ence, and carelessness, and may generate acost-conscious labor force.
Q11-6. Generally, hourly earnings go up withincreased production, and labor cost perunit of output is reduced. High productionrates also reduce overhead cost per unit ofoutput, which is often the most significantsavings.
Q11-7. (a) During periods of curtailed activity, it isjust as necessary to keep costs down asit is when operating at full capacity.Assuming that the incentive wage planresulted in greater labor efficiency andlower costs per unit at full capacity, thenthe labor cost per unit should be lower ina slack period if the incentive wage scaleis continued. A shorter workweek or someother system of sharing the work wouldbe indicated.
(b) Ordinarily, it is not a propitious time to ini-tiate an incentive wage plan when a plantis operating far below capacity, becausethe worker is already fearful of somethingless than full employment. If a reasonableday’s work is being received for the goingrate of pay, postponement of the incentiveplan is indicated. However, there is a nat-ural tendency for workers to reduce outputduring such periods, thereby increasingcosts, with a tendency to bring about fur-ther reduction in the volume that can besold. With full explanation and under-standing of the situation, the incentivewage could be introduced with a plantoperating at 60% capacity.
Q11-8. In the straight piecework plan, each worker ispaid a certain amount for each unit produced,while being guaranteed a base hourly wage.In the 100% bonus plan, each worker is paidfor the standard time to complete the job orunits if the job or units are finished in standardtime or less. In the group bonus plan, workersin a group are paid their standard hourlywage. If the group produces units in excess ofthe standard, the workers are paid for the timesaved.
11-2 Chapter 11
Q11-9. An organizational or gainsharing incentiveplan is designed to provide incentive pay to allemployees by way of an organization-wideplan that rewards for improved productivity.
Q11-10. The basic concept underlying the relation-ship involved in the cumulative average timelearning curve model is that every time thecumulative quantity of units produced is dou-bled, the cumulative average time per unit isreduced by a given percentage.
Q11-11. The learning curve theory is used to solveproblems such as determining labor costs inbids for government contracts, determininglot costs for various stages of productionruns, predicting labor-hour requirements,permitting the calculations of standard laborcost variances, assisting in the evaluation ofa manager’s performance, and providing abasis for cost control.
Q11-12. The financial accounting aspect is concernedwith a record of earnings of each employeeand payment of the workers. Financialaccounting records income, FICA, and otherpayroll taxes and deductions withheld; pro-vides for disbursing funds to workers and totaxing and other agencies; reports to eachemployee at least annually the amount ofwages earned and the amounts withheld forvarious purposes; and records the payrollliability and payment each payroll period.
The cost accounting aspect is concernedwith time worked on each job or in each costcenter, in order to determine the labor hoursand labor cost of production.
Q11-13. An efficient labor force begins with thedesign of the product and an analysis of pro-duction techniques and job requirements.With the personnel department adequatelyinformed about job specifications, It is thefunction of this department to secure thepersonnel qualified to do each job. The pro-duction planning department keeps the workflowing smoothly. The timekeeping, payroll,and cost accounting departments contributeto the total efficiency by accounting for thetime purchased and by making payment forthe work as well as charging the cost to theproper department and product.
Q11-14. (a) Determining labor hours worked byeach employee is primarily for payrollpurposes and financial accounting.
(b) Determination of labor hours consumedon each job or in a department is a partof cost determination for a job orprocess. It should also be a measure oflabor efficiency, since hours consumedand productive output can be compared.
Q11-15. (a) The clock card shows the amount oftime an employee spent in the planteach day of a payroll period. It is evi-dence that the employee’s time hasbeen purchased.
(b) The time ticket shows the amount oftime an employee spends each day oneach job or in each department. It is anitemized invoice of the time that theemployee sells to the employer.
Q11-16. Since the clock cards show the time employ-ees are in the plant, the first step is to makesure no error exists on the time tickets. If thetotal time shown on the time tickets is cor-rect, then the workers spent time in the plantwhen not working or not assigned to specificjobs or departments, or when assigned tomaintenance or repair work For the time thatis idle or assigned to indirect labor, a chargeis made to Factory Overhead.
Q11-17. Bar codes are symbols that can be processedelectronically to identify numbers, letters, orspecial characters. Bar-coded employeeidentification cards or badges, and taskidentifications can be used to replace clockcards and time tickets to collect payroll dataand to measure worker activity.
Q11-18. Appendix One method would be to chargethe premium costs directly to theproducts in the same manner asstraight-time labor costs. Thiswould be appropriate when partic-ular jobs have to be rushed tocompletion. A second methodwould be to treat the premium asan overhead element to becharged to all production throughthe allocation of overhead. Itwould be appropriate when theovertime is a recurring conditionnormally incident to the level ofoperations.
Q11-19. Appendix The bonus and vacation payshould be accrued over the bene-fited time period. When the bonus
Chapter 11 11-3
and vacation pay are paid, theaccrued liability account is debitedand the cash and withholdingaccounts are credited.
Q11-20. Appendix The recommended method incomputing costs under a pensionplan is to determine actuariallythe eventual pension payments tocovered employees and to chargethese future payments as a costof current production over theexpected period of active service ofcovered employees. Costs basedon past services should be writtenoff over some reasonable period
on a systematic and rational basisthat does not distort the operatingresults of any one year. Thesecosts are incurred in contempla-tion of the present and future serv-ices not only of the individualemployee, but also of the organi-zation as a whole. Benefits of theplan—such as improved morale,removal of superannuated employ-ees, and attraction of more desir-able personnel—are expected toimprove the operating efficiency ofa company.
EXERCISES
E11-1ORANGE CITY CANNING COMPANYLabor Schedule for Jaime Vasquez
For First Week in June
Hours worked .................................................................................. 40Units produced................................................................................ 1,440Standard production (40 × 30) ...................................................... 1,200Efficiency ratio (1,440 ÷ 1,200) .................................................. ... 120%Base wage .................................................................................. .... $ 9Weekly earnings ($9 × 40 × 120%)................................................. $ 432Effective hourly rate ($432 ÷ 40) ................................................... $10.80Labor cost per unit ($432 ÷ 1,440) ............................................. .. $ .30
E11-2(1) Monday Tuesday Wednesday
Hours × hourly rate............ ................... $64.00 $64.00 $64.00Units above standard............................ 0 10 15Hours saved........................................... .50 .75Value of time saved .............................. $ 4.00 $ 6.0080% of value of time saved .................. $ 3.20 $ 4.80Earnings ................................................ $64.00 $67.20 $68.80 $200.00
E11-5 20A productivity ratio = 20A standard hours for work done ÷ 20A total actual direct and indirect labor hours = 643,823 ÷ 1,525,324 = .422089
Hours needed for 20B production at 20A productivity ratio = 20B standard hours for work done ÷ 20A productivity ratio = 558,510 ÷ .422089 .............................................................................. 1,323,204Less 20B total actual direct and indirect labor hours.................... 1,284,983Hours saved ....................................................................................... 38,221
Value of wages saved = hours saved × 20Baverage hourly pay plus labor fringe benefits = 38,221 × $14.70 = $561,849
Employee gainsharing incentive total = value of wages saved × 50% = $561,849 × 50% = $280,924.50
Gainsharing incentive per employee = total gainsharing incentive ÷ number of eligible employees =$280,924.50 ÷ 755 employees = $372.09
E11-6 1 batch ............................................................. $60,0002 batches ............................................................ $48,000 (80% of $60,000)4 batches ............................................................ $38,400 (80% of $48,000)8 batches ............................................................ $30,720 (80% of $38,400)
16 batches ............................................................ $24,576 (80% of $30,720)
7 additional bridges must be built in order to bring the cumulative average below 52weeks.
11-6 Chapter 11
Chapter 11 11-7
E11-8(1) The schedule below demonstrates the 80% learning curve that the company
expects to experience in producing the time devices:
CumulativeCumulative Average Cumulative
Lots × Time = Time 1 90.00 hours 90.00 hours 2 72.00 144.00 4 57.60 230.40 8 46.08 368.64
At an 80% learning factor, the cumulative time to produce 8 lots should be368.64 hours. At a standard labor rate of $9 per direct labor hour, the standardamount for total direct labor cost should be set at $3,317.76 (368.64 × $9).
(2) The company should establish the standard for direct labor time equal to themarginal direct labor time required to produce the eighth lot, providing steady-state production occurs after the eighth lot. To assure that this standard timewill be accurate, the company should:(a) Keep accurate records through the first 8 lots to determine if an 80% learn-
ing factor is experienced.(b) Continue to keep accurate records for each successive production lot to
provide a basis for:1. Conformance to expectations about labor time (i.e., steady state pro-
duction after 8 lots), or2. Determining when steady-state production does occur.
E11-9 APPENDIX(1) Overtime premium charged to production worked on during the overtime
hours:
Work in Process............................................................... 441Payroll (40 hours × $9) + (6 hours × 1.5 × $9) ...... 441
(2) Overtime premium charged to factory overhead:
Work in Process (46 hours × $9) ................................... 414Factory Overhead Control (6 hours × .5 × $9) ........... .. 27
E11-12 APPENDIX(1) The entry to record the payroll liability:
Payroll ............................................................................ 26,700.00Employees Federal Income Tax Payable ........... 2,500.00Employees State Income Tax Payable ............... 500.00Employees City Wage Tax Payable ................... 267.00FICA Tax Payable ................................................. 2,002.50Accrued Payroll ................................................... 21,430.50
(2) The entry to distribute the payroll:
Work in Process............................................................ 18,000.00Factory Overhead Control ........................................... 3,000.00Marketing Expenses Control ....................................... 4,200.00Administrative Expenses Control ............................... 1,500.00
(3) The entry to record the employer’s payroll taxes:
Factory Overhead Control .......................................... 2,394.00Marketing Expenses Control ....................................... 478.80Administrative Expenses Control .............................. 171.00
(2) If a production rate above 40 units per employee per 8-hour day is reasonablyattainable by the worker, the employee earnings will increase under the piece-work proposal. Since conversion cost per unit decreases with increased output,management should favor the piecework proposal.
P11-2 (1) Regular Workweek Incentive Wage Plan
Total Incentive Pay TotalHourly Work- Labor Base Pay (Units Produced × Labor
(2) To assess properly the effectiveness of the new plan, it is necessary to ana-lyze its effect on conversion costs and not just on direct labor costs.Although direct labor cost per unit may rise, this increase may be more thanoffset by distributing the overhead over a larger volume.
A comparison of the two pay plans and their effects on conversion cost perunit shows:
Total Labor Total Total UnitLabor Cost Factory Overhead Conversion ConversionCost per Unit Overhead per Unit Cost Cost
Incentive wage plan $1,035 $6.27 $1,200 $ 7.27 $2,235 $13.551
The decrease in conversion cost is minimal; however, the fact that customerscan be served sooner might be worth additional labor cost. Based on learningcurve theory, the productivity of the worker might increase sufficiently toreach a more satisfactory output and cost level.
11-12 Chapter 11
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Chapter 11 11-13
P11-3 (Concluded)
(3) Hours worked ............................................................... 40Units produced ............................................................ 855Standard production (20 units × 40 hours) ............... 800Efficiency ratio (855 ÷ 800) ......................................... 1.06875Base wage per hour ..................................................... $9.00Base wage plus bonus (1.06875 × $9)........................ $9.61875Weekly earnings ($9.61875 × 40 hours)...................... $ 384.75Unit cost ($384.75 ÷ 855 units) ................................... $ .45
Suggs WardUnits produced ............................................................. 240 590Standard production ................................................... 300 5701
1 400 units per 40 hours = 10 units per hour10 units per hour ÷ 5 workers = 2 units per hour72 units produced ÷ 2 units per hour = 36 hours standard time
2 If the group bonus is computed for the week, rather than daily, the bonus would be $6 × 26 hourssaved, or $156. Then, $1,356 ÷ 452 units = $3 unit labor cost. Overhead cost would be $1,400 ÷ 452units, or $3.0973 per unit.
P11-7(1) THOMAS INC.
Quarterly Bonus Allotment At End of March
PointsEmployees Allowed for Total Share Total
Participating Each Employee Points per Point Share1 Works manager ................. 250 250 $3.125* $ 781.252 Production engineers ........ 200 400 3.125 1,250.005 Shop supervisors............... 200 1,000 3.125 3,125.001 Storekeeper ........................ 100 100 3.125 312.505 Factory office clerks ......... 10 50 3.125 156.25150 Factory workers ............ 20 3,000 3.125 9,375.00
4,800 $15,000.00
* 270,000 units actual production 240,000 units normal production
30,000 units excess over normal
30,000 units × $.50 = $15,000 $15,000 ÷ 4,800 points = $3.125 per point
P11-7 (Concluded)(2) At the end of January no entry is required, since production was below 1/3 of
240,000 units, or 80,000 units. The deficiency was 5,000 units (80,000 – 75,000).
At the end of February, the entry is:
SubsidiaryRecord Dr. Cr.
Factory Overhead Control ................................ 4,500*Bonus Pay ........................................ 4,500
Liability for Bonus .................................... 4,500 *Excess units (94,000 – 80,000) 14,000 unitsLess January deficit .......................5,000Net excess .......................................9,000 units
9,000 × $.50 = $4,500
At the end of March, the entry is:
Factory Overhead Control ................................ 10,500* Bonus Pay ........................................ 10,500
Liability for Bonus .................................... 10,500
*101,000 units – 80,000 units = 21,000 excess units21,000 units × $.50 = $10,500.
11-18 Chapter 11
P11-8
(1)Cumulative Cumulative Time in HoursNumber Number of Units Cumulativeof Lots (Lot Size = 50) Average Time Per Unit Cumulative Time
Direct labor hours required to produce the first 800 units ................... 2,099.52Direct labor hours required to produce the first 200 units ................... 648.00Direct labor hours required to produce the next order ......................... 1,451.52Number of units in the next order ........................................................... 600Direct labor hours per unit for the next order (1,451.52 ÷ 600) ............ 2.4192
Catonic Part Number PCB-31Unit Costs and Prices for Rex Engineering Company
Estimates Incorporating
a 90% Learning Curve
Materials ........................................................................ $180.00 Labor and employee benefits (2.419 × $20) ............... 48.38 Variable overhead (50% of labor)................................ 24.19
Total variable cost ................................................. $252.57Fixed overhead ............................................................ 40.00
Full cost................................................................... $292.57 Profit contribution (10% of full cost) ......................... 29.26
(2) The implications of an 80% learning curve as opposed to a 90% learning curveare:(a) An 80% learning curve indicates a greater effect of experience on efficiency.
(b) Most of the increase in efficiency (decrease in time and cost per unit) due toan 80% learning curve occurs early in the production run; thus, saturation inlearning is achieved earlier with an 80% learning curve.
Chapter 11 11-19
P11-8 (Concluded)(3) The degree of learning that takes place in an industrial operation would be
reduced by:(a) a low proportion of assembly labor to machine labor;(b) an operation of low complexity;(c) high employee turnover;(d) tedium;(e) poor working conditions.
P11-9 APPENDIX(1) Charge to work-in-process:
Normal working hours = 40 hours × 2 = 80 hours Let X = overtime hours
X =
X = 10 hours
Therefore, charge to work in process = 90 × $12 = $1,080
(2) Factory overhead charge for Employee #1071:Company benefits paid by employer.......... $273.20Overtime premium ....................................... 60.00 ($1,140 – $1,080)
$333.20
(3) The cost of idleness should be charged to the departmental factory overhead account.
(a) 1,000-pieces-per-hour-rate:(1) Studies show that machines can be operated at this rate.(2) Variances determined by this output rate will measure the ineffective
use of the machines.(3) This rate can be a target level to be strived for, and the changing vari-
ances will show progress toward this target.(4) A goal of this nature will motivate the supervisor, and thereby the work-
ers, to reach this rate of output.(b) 750-pieces-per-hour-rate:
(1) This rate of output has been attained by some workers.(2) The 1,000-pieces-per-hour rate has not been attained, nor has any rate
near to it been attained.(3) The 600-pieces-per-hour rate is an average of actual performance and
does not represent good economical performance.(4) The standard cost should reflect production rates that can be attained
when good economical performance occurs. The 750-pieces-per-hourrate, capable of being achieved by some workers, would seem to besuch a performance.
(5) The variances would measure the extent by which this economical levelhas been exceeded or the extent to which it has not been met.
(6) It should provide motivation for the supervisor to improve on the 600-pieces-per-hour current rate and in turn motivate the employees toimprove their performance.
(c) 600-pieces-per-hour rate:(1) This rate has been achieved by the department as a whole.The standard
costs should be set to reflect the ability of the whole department.(2) The variances from standard cost based upon the 600-pieces-per-hour
rate would measure the departures, favorable and unfavorable, from thecurrent effective level of operations.
(3) For two thirds of the workers, the 750-pieces-per-hour rate would be dif-ficult to attain and would tend to frustrate them, thus making even thepresent 600-pieces-per-hour rate difficult to maintain. For all workers,the 1,000-pieces-per-hour rate could not be attained, thus lowering themorale of the department and probably lowering output below currentlevels.
(4) The 600-pieces-per-hour-rate, when passed down to the productionworker, would be an appropriate goal for those three employees who areproducing fewer than 600 pieces per hour.
11-22 Chapter 11
C11-1 (Concluded)(2) The purpose of standard costs and standard cost reporting is to measure the
performance of a department against a level of cost incurrence that representsattainable good economical performance. The variances indicate the periodswhen the performance varied (favorably or unfavorably) from this acceptablelevel.
To be used effectively, the rate to motivate the supervisor and, thereby, theworkers to improve performance would depend upon the perceptions as towhat is attainable. It would also depend upon the reward structures within thefirm. Other variables would also affect what output rate would motivateimproved performances.
The value picked (e.g., 1,000, 750, or 600) must be a compromise betweenthe level that will have the most effective motivational result and that which willbe an effective representation of the costs when the department is operating atan acceptable economical level. The 1,000-pieces-per-hour rate should berejected because it does not provide the basis for a measure of an acceptablecost level. It would also be of questionable value from a motivational point ofview, because it appears to be unattainable by the production workers.
The 750-pieces-per-hour rate is a possible choice. It is capable of beingachieved by some workers and as such may provide motivation to the supervi-sor to bring other workers up to that level, thus achieving a departmental out-put of 750 pieces per hour. It also may represent the appropriate basis for astandard cost because it is a possible acceptable level of performance. It mayalso be a suitable departmental target established in connection with the intro-duction of the standard cost system.
The 600-pieces-per-hour rate is also a possible candidate. The PunchPress Department has achieved this level, and three of the six employees havebeen able to achieve it. It is, however, the current level of output and that maymake it ineffective in motivating the department and its workers to improve thelevel of output. As the basis for standard costs, it could represent an acceptablelevel of output; but it does not incorporate the possible improvement likely tobe obtained in connection with an introduction of a cost system.
The 750-pieces-per-hour rate seems to be the best choice of the threealternatives. More information about the conditions under which the engineer-ing studies were done, the training and experience of the workers, and the trendof worker and department output in recent periods would be necessary, beforethe number could be chosen with some assurance that it would meet the statedobjectives.
Chapter 11 11-23
C11-2(1) An advantage of the new payroll incentive plan is that it recognizes a problem,
which should improve employee motivation. Action taken by management willbe perceived as a positive effort to resolve a problem, and employees may feelmore a part of the group and behave as team members.
Some disadvantages, which could lower employee motivation, are thatemployees’ files are open to scrutiny by peers, and that employees may feel thatthey have to be a part of the “in group” to be assured recognition for wageincreases. The plan could degenerate into a popularity contest.
(2) Some advantages that should improve employee productivity are the incentivesthe plan provides for employees to perform efficiently and effectively, and thebeneficial competition it promotes among employees, as long as it is in har-mony with corporate goals.
A disadvantage that could lower employee productivity is that the plancould lead to collusion among groups of employees to keep productivity levelsartificially low. Employees could approve each other’s wage requests withoutappropriate merit. The plan also could result in inefficiencies, because employ-ees who have had their wage increases turned down may not work up to capac-ity due to a loss of interest.
(3) Some advantages that should improve goal congruence between the employeeand the company are that the plan indicates the company’s interest in the needsof the employees, and that the plan may result in increased profit throughimproved productivity, which may lead to employees earning a larger incomethrough increases in wages.
Some disadvantages that could lower goal congruence are that employ-ees may mistrust a wage plan suggested and implemented by management,and that there may be an overemphasis on a limited range of performancemeasures.
(4) Some advantages that should improve administration of the plan are that pro-cedures for requesting a wage increase and for its approval are clear and unam-biguous, and the plan allows for relatively quick positive feedback and peerrecognition.
Some disadvantages that could hamper plan administration are that thereis a limited amount of management input and control, and that there will beadditional record-keeping responsibilities associated with the voting proce-dures and maintenance of employee productivity records and personnel files.
11-24 Chapter 11
C11-3(1) The basic premise of the learning curve is increased productivity as experience
is gained in the performance of repetitive tasks. Various inputs to the produc-tion process may be used more efficiently as cumulative output increases, butin most production processes the majority of cost savings associated with alearning phenomenon involve the use of human labor.
(2)
(3) With a learning rate up to cumulative output of 32 units, average direct laborhours used to produce these 32 units should equal 85% of the average directlabor hours used to produce the first 16 units. In short, average hours employedfor each unit when 32 units are completed should equal:
340 × .85 = 289 hours per unit.
This implies a total of 289 × 32 = 9,248 hours used in the production of the first32 units, or
9,248 – 3,200 – 2,240 = 3,808 hours
used in the production of units 17 through 32. If the average hours per unit inthis production batch is taken as the direct labor standard, the standard per unitbecomes:
(4) Bid price on order of 96 units:Raw materials (50 sq. ft. × $30) .......................... $ 1,500Direct labor (238 hours × $25)............................ 5,950Variable factory overhead (238 hours × $40) .... 9,520Total variable manufacturing cost per unit ...... $ 16,970Markup ($16,970 × 30%) ..................................... 5,091Bid price per unit................................................. $ 22,061Number of units................................................... × 96Total bid price ..................................................... $2,117,856
(5) Some applications of the learning curve in the planning and controlling of busi-ness operations are setting performance standards, preparing cost estimates incompetitive bidding, determining budget allowances for labor and labor-relatedcosts, scheduling labor requirements, and determining performance evalua-tions in which periodic progress reports are compared with accomplishmentsexpected under the curve.
3 80816
238, hours
unitshours per unit=
Chapter 11 11-25
( , , ),
%3 200 2 240 16
3 200 8340400
85+ ÷
÷= = learning rate
C11-4 Shortcomings:(1) Actual payroll hours are not approved by production management.(2) There is inadequate segregation of duties within the Payroll Department.(3) Personnel Department should not have access to payroll checks.(4) Department supervisors should not distribute the payroll checks.
Suggested corrective action:(1) All incoming time cards should be signed by both the employee and supervisor.(2) The payroll clerk preparing the input for data processing should not do the rec-
onciling, but rather a second clerk should reconcile the payroll journal to thetime cards.
(3) An employee of supervisory level should authorize voiding of computer-generated checks and the subsequent preparation of a manual replacementcheck.
(4) Replacement checks should be processed following good internal controlprocedures.
(5) All payroll checks, including unsigned replacement checks, should then begiven to the Accounting Department rather than to the Personnel Departmentfor storage in a secure location until payday. No Accounting Departmentemployee with payroll record-keeping responsibility should have access to theundistributed checks.
(6) On payday, checks should be distributed, preferably by a Treasurer’sDepartment employee or by an Accounting Department employee who does nothave record-keeping responsibilities.
C11-5(The requirement does not ask for a list of responsibilities Osborne has violated,but, merely, which of the fifteen responsibilities apply to Osborne’s situation.)
Management accountants have a responsibility to:
Competence: Prepare complete and clear reports and recommendationsafter appropriate analyses of relevant and reliable information. (Osborne knowsthat if he consents to Wallace’s request, the resulting maintenance job costreports would be materially misstated and would present false and misleadinginformation.)
Integrity: Refrain from engaging in any activity that would prejudice theirability to carry out their duties ethically. (Osborne is being asked to be a partyto an activity that would erode his ability to carry out his duties ethically.)
Communicate unfavorable as well as favorable information and pro-fessional judgments or opinions. (Osborne is being asked to thwart com-munication of unfavorable information.)
11-26 Chapter 11
11-5 (Concluded)
Refrain from engaging in or supporting any activity that would discreditthe profession. (Preparing deliberately misleading maintenance job costreports clearly would be a discredit to the profession.)
Objectivity: Communicate information fairly and objectively. (Osbornewould violate this responsibility if the maintenance job cost reports arealtered.)
Disclose fully all relevant information that could reasonably be expectedto influence an intended user’s understanding of the reports, comments, andrecommendations presented. (The shifting of cost among maintenance jobswould violate this ethical responsibility.)
