Benchmarking Units Produced = 80,000 Units Sold = 60,000 Direct Materials Purcha

Question

Benchmarking

Units Produced = 80,000

Units Sold = 60,000

Direct Materials Purchased and Used

Actual square yards of cloth purchased and used: 128,000

Actual price incurred per yard: $1.25

Actual handles purchased and used: 80,808

Actual price per handle/rib/stretcher assembly: $0.99

Direct Manufacturing Labor Used

Actual direct labor hours used: 15,748

Actual price per hour: $7.62

Direct labor costs: $120,000

Standard Rates

Standard labor hours per unit: 0.20

Standard labor price per hour: $7.50

Square yards material per unit: 1.50

Standard price per yard: $1.15

Handle/rib/stretcher assembly per unit: 1

Standard price per handle assembly: $1.05

Calculate price variances for material and labor and denote whether they are favorable or unfavorable. DONE:

Actual

Standard

Actual Quantity

Variance

Favorable or Unfavorable

Cloth

$1.25

$1.15

128,000

$12,800.00

Unfavorable

Handle Assembly

$0.99

$1.05

80,808

-$4,848.48

Favorable

Labor Price Variance

$7.62

$7.50

15,748

$1,889.76

Unfavorable

Calculate efficiency variances for material and labor and denote whether they are favorable or unfavorable. DONE:

Actual

Standard

Standard Price

Variance

Favorable or Unfavorable

Cloth

128,000

120,000

$1.15

$9,200.00

Unfavorable

(1.5 Yards per Unit)

Handle Assembly

80,808

80,000

$1.05

$848.40

Unfavorable

(1 per Unit)

Labor

15,748

16,000

$7.50

-$1,890.00

Favorable

(.20 per Unit)

PLEASE ANSWER:

C. Which benchmarking method should management adopt and why?

Actual

Standard

Actual Quantity

Variance

Favorable or Unfavorable

Cloth

$1.25

$1.15

128,000

$12,800.00

Unfavorable

Handle Assembly

$0.99

$1.05

80,808

-$4,848.48

Favorable

Labor Price Variance

$7.62

$7.50

15,748

$1,889.76

Unfavorable

Explanation / Answer

C) The company should adopt competitive benchmarking. Under this method company would be using other companies in the industry as a benchmark for their performance. This method allows company to see how profitable they are compared to other companies in the same industry and allow them to develop new strategies to be as profitable as their competitors. Furthermore, this strategy will allow company to develop production goals that would match those of their competitors to motivate employees.

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