Ms. Mary Kaufmann, president and sole owner of Kaufmann Manufacturing Company (a manufacturer of a single, specialized, industrial product), had just received the financial results of her company for the second six months of 1992. At first, she was pleased by what she observed. However, when she compared these results to those of the first six months of 1992 and the budgets she had originally cast for the two six-month periods (see Exhibits 1, 2 and 3), she became confused. Ms. Kaufmann could not understand why profits had increased so dramatically in the second half of the year, even though actual sales volume had fallen to 188,000 units.
She thought that a part of the improved profit could be attributed to the $3 selling price increase which she had authorized effective July 1, 1992; however, she did not believe its effect would be so dramatic. She thought that another part of the profit increase could be attributed to control of production costs, yet when she examined the manufacturing statements (Exhibit 3) she observed that production showed an overall unfavorable variance of $217,000 for the second six months of 1992 as compared to an overall favorable variance of $124,000 for the first six months of 1992. In order to gain an understanding of these confusing results, Ms.
Kaufmann decided to meet with her sales manager, Sandy Stevens, and her production manager Carlos Chavez. She would have liked to have had her treasurer-controller, Kenneth Page, at the meeting, but Mr. Page was in New Orleans completing the financing arrangements for Kaufmann’s planned expansion into the South. The following excerpts are from the January 15, 1993 meeting between Kaufmann, Stevens, and Chavez. Mary Kaufmann: Sandy, it looks like your idea to raise our price from $90 to $93 during the second half of the year really came through. We lost volume, just as you predicted, but we sure gave a boost to our income statement,
The Research paper on The main responsibility of business is to increase the profit for its shareholders – discuss
The main responsibility of business is to increase the profit for its shareholders – discuss ’. First I am going to explain the role of shareholders and how they affect the decision making of businesses. I will then discuss other stakeholders and the responsibilities that the business ‘owes’ to them. I also plan to look at examples of real life businesses that have made decisions based on the ...
also as you predicted. have you looked into your crystal ball for this year? Do we hold the line at $93 or should we risk another slight price increase? Sandy Stevens: Well, Mary I think our pricing strategy for this year is really going to depend on how well Carlos can control his costs. From the statements you’ve shown me (referring to Exhibits 1 through 3) it would appear as though we could have done even better in the second half if it had not been for $217,000 in unfavorable variances chalked up by production. Carlos Chavez: (Interrupting) Now hold on Sandy.
Your neat little pricing strategy and its resulting decrease in volume raised havoc with our production scheduling. As you recall in our last meeting in July, Mary chewed me out for not meeting our normal production goal and for running down our inventories during the first six months of the year. So I go all out to meet—in fact, exceed— Professor Julie H. Hertenstein of Northeastern University prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. It is based on an earlier case prepared by Professor Norman J.
Bartczak. Copyright © 1993 by the President and Fellows of Harvard College. To order copies, call (617) 495-6117 or write the Publishing Division, Harvard Business School, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means— electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 1 This document is authorized for use only by YIMING ZHAO in Managerial Accounting taught by Hai Lu from January 2014 to May 2014. For the exclusive use of Y. ZHAO 193-159
The Essay on Relationship between productivity and the cost of production
What is the relationship between productivity and the cost of production? The relationship between productivity and the cost of production is your cost per day or per hour compared to your productivity. By examine these two things together. The productivity which is your output for the amount of hours worked compared to the total cost of a certain item – you will be able to reach a “break even ...
Kaufmann Manufacturing Company (A) normal production in the second half and all I get is grief. These variances (referring to the variances in Exhibit 3) are not my fault! They are simply due to your generating only 188,000 in unit sales. I’ve kept things in line; in fact, I’ve improved my performance over the first six months. Mary Kaufmann: I sure can’t tell it from these figures, Carlos. Exactly what did you do to improve your performance? Carlos Chavez: Let me give you some general examples. Here’s a copy for each of you of the standard cost sheet (Exhibit 4) which Ken Page worked up at the beginning of 1992.
As you know, Ken worked for quite some time establishing the standards, and at our budget review meeting in December 1991 we all agreed that they seemed reasonable. I remember that we had some trouble with understanding how the fixed costs were to be allocated to our production for 1992, but Ken convinced us that something called “full absorption costing” on the basis of a normal production level would ensure that we cover all of our costs. Anyway, I’ve tried to adhere to these standards as much as possible, but Ken said we could expect some variances simply because volume might be up or down from normal.
He also said that it was likely that these variances would “wash out” by year end. Mary Kaufmann: (Interrupting) This standard cost sheet is very interesting Carlos, and I do remember approving it, but I don’t see how it shows that you’ve improved your performance. Carlos Chavez: Sorry, Mary, I was getting to that. As I mentioned, Ken said that by year end some of the variances would “wash out,” and as you can see from the manufacturing statements (Exhibit 3), the net variance for the year is only $93,000 over budget. Why that’s less than 1% of our original budget!
Also, as you can see from the manufacturing statement, I’ve beefed up our supervision back to its normal level, and I hope to see improvement in the next six months. In fact, my supervisors told me they felt they had done a good job in the second half of the year. Mary Kaufmann: The figures (pointing at Exhibit 3) sure don’t show it! It looks as though your purchasing agent has been slack, your laborers inefficient, and your supervisors have tried to cover up their mistakes by cutting maintenance! Carlos Chavez: Give me a little time to develop some reports to explain the
The Essay on Fabric Cost Production July
GN's trip to US GN informed the EMC about his trip to US and his meetings with various buyers viz. Greg Norman, NFL, Kohls, etc. He appraised that lot of business can be done with Kohls, especially in boxers. Also he felt that there is a big opportunity in terms of stock sales of both knitted T-shirts and boxers in Canada. He proposed that a small office be opened in Canada. It was agreed that ...
difference between expected and actual profitability in the first six month and the second six months of 1992. Questions 1. Compare and evaluate the profit and manufacturing performance of Kaufmann Manufacturing Company for the first and second six months of 1992. Write a memo to Ms. Kaufmann summarizing your analysis. 2. During the first half of 1992, Kaufmann Manufacturing Company just about broke even on sales of 212,000 units. In comparison, during the second half of 1992, when sales were 188,000 units, operating income was $1,619,800. Briefly explain this apparent inconsistency.
2 This document is authorized for use only by YIMING ZHAO in Managerial Accounting taught by Hai Lu from January 2014 to May 2014. For the exclusive use of Y. ZHAO Kaufmann Manufacturing Company (A) Exhibit 1 193-159 Comparative Income Statements (thousands of dollars) Original Budget for First Six Months of 1992 Sales Cost of goods solda aAll Original Budget for Second Six Months of 1992 Second Six Months Actual $18,000. 00 14,940. 00 $19,080. 00 16,608. 80 $18,000. 00 14,940. 00 $17,484. 00 13,364. 20 3,060. 00 2,500. 00 2,471. 20 2,500. 00 3,060. 00 2,500. 00 4,119. 80
2,500. 00 560. 00 $ 1,619. 80 Gross margin Selling and administrative expenses Operating incomeb First Six Months Actual $ 560. 00 $ (28. 80) $ manufacturing variances are closed out to cost of goods sold on a semi-annual basis. need not be considered. bTaxes Exhibit 2 Sales, Production, and Inventory Statistics First Six Months, 1992 Second Six Months, 1992 Sales forecast Actual sales 200,000 units 212,000 units 200,000 units 188,000 units Normal production Actual production 200,000 units 188,000 units 200,000 units 212,000 units Raw materials, inventory, beginning of period
0 0 Finished goods inventory, beginning of period 100,000 units at $74. 70 standard cost per unit 76,000 units at $74. 70 standard cost per unit Raw materials purchased and used in production 590,000 lbs. 600,000 lbs. Direct labor hours used in production 400,000 hours 425,000 hours 3 This document is authorized for use only by YIMING ZHAO in Managerial Accounting taught by Hai Lu from January 2014 to May 2014. For the exclusive use of Y. ZHAO 193-159 Exhibit 3 Kaufmann Manufacturing Company (A) Comparative Manufacturing Statements (thousands of dollars) Original
The Essay on Manufacturing and Swatch
1. What do you think has been the contribution of the marketing function, the product design function and the operations function to the success of Swatch? Swatch is a good example of the way three sets of competitive abilities in a company relate to each other. The three key contributions to Swatch’s success (or the three important micro operations) are •the way they have developed their products ...
Budget for First Six Months of 1992 Raw materials Direct labor Factory overhead: Indirect labor Supplies Power Maintenance Supervision Depreciation Insurance First Six Months Actual Variance Original Budget for Second Six Months of 1992 Second Six Months Actual Variance $ 2,400 4,400 $ 2,281 4,400 $119F – $ 2,400 4,400 $ 2,432 4,813 $ 32U 413U 1,080 70 1,200 2,050 1,930 1,460 350 1,080 70 1,200 2,172 1,800 1,460 353 122U 130F 3U 1,080 70 1,200 2,050 1,930 1,460 350 1,143 76 1,274 1,676 1,930 1,460 353 63U 6U 74U 374F 3U $14,940 $14,816 124F $14,940 $15,157
217U Note: F = favorable; U = unfavorable. Exhibit 4 months) Standard Cost Sheet (based on normal production volume of 200,000 units every six Cost Per Unit Raw material (3 lbs. of material to complete one unit; @ $4. 00 per lb. ) Direct labor (2 hours to complete one unit; @ $11. 00 per hour) $12. 00 22. 00 Factory overhead: (all allocated on the basis of units of production) Variable costs: Indirect labor Supplies Power 5. 40 .35 6. 00 Fixed costs: Maintenance Supervision Depreciation Insurance 10. 25 9. 65 7. 30 1. 75 Total standard production cost per unit
