Colorado State University Accounting Production Volume Discussion

User Generated

avy99

Business Finance

Colorado State University

Question Description

Help me study for my Accounting class. I’m stuck and don’t understand.

Managers often use variance analysis in employee performance evaluations for the following two attributes—effectiveness and efficiency. Blocher et al., point out that variance alerts management to whether the organization is achieving its short-term financial goals and note that for companies to reduce variances and improve financial performance, it is first necessary to identify and report the causes and how well the variance can be controlled.

Read the following scenario and respond to the questions following.

During the last quarter of FuturePrint’s fiscal year, Jean Day, the CFO, calculated the production volume variance for the quarter, noting a significant favorable variance resulting from increased production. In fact, although there was no change in the sales forecast for the year, production had increased 30% for the quarter. Concerned that the company may now have a backlog of inventory to manage, Day met with Gerry Rick, the plant supervisor.

Mr. Rick indicated that he had directed the production department to increase manufacturing for the period. He indicated that the rationalization for increased production was that companies would have excess cash in their budgets at year end to replace existing printers with new higher tech printers such as the ones made by FuturePrint. Day was not satisfied that this was the complete story.

  • What was the effect of the production volume variance on plant operating income at year end assuming none of the excess inventory was sold?
  • What could have been a possible motivation for Rick’s directive?


Explanation & Answer:
350 words
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Explanation & Answer

Attached.

Running head: PRODUCTION VOLUME

1

Production Volume
By Name
Course
professor
Institution affiliation
Date

PRODUCTION VOLUME

2

Production Volume
Every company has a profit and shareholders wealth maximization objectives in their
vision and mission statements. The managers thus set goals such as the amount of profit they
want to achieve and the strategies they will use to achieve the goals this decision are equally
expected to be filtered in Future Print with no exception. The plant supervisor Garry Rick sets
the production volume in order to meet the plant goal. However, Jean Day, the company CFO
noted a favourable production variance which was not reflected in sales. The production aims to
have sufficient product to sell; thus, an increase in production volume should be motivated by
existing demand....

GhgbeYneen (29487)
Boston College

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