Ryde company produces a number of chemical pesticide products for agricultural p
ID: 2513035 • Letter: R
Question
Ryde company produces a number of chemical pesticide products for agricultural producers. Ryde offers farmers an extensive range of premium products and expertise., and is committed to research and developing more sustainable and environmentally friendly solutions to protecting farmers' crops. You are employed at Ryde as a management accountant, and one of your key duties is to conduct an annual review of actual costs to budget. As part of this task, you are currently looking at Ryde's ProPowder product - a dust that can be used to kills and controls some of the major pests and diseases on tomatoes and vegetables The following standard costs for the ProPowder product were set at the beginning of the last financial year Direct materials Direct labour (5 kgs @ $2.00 per kg) (1.5 hrs @ $12.00 per hr) $10.00 $18.00 Actual outcomes for the ProPowder product were as follows Units produced Materials purchased and used 245,000 kgs Direct labour 50,000 $2.10 per kg 90,000 hrs$13.20 per hr Required: (13 marks in total) (a) From the above information, compute the (i) Direct materials price variance. (1 mark) i) Direct materials quantity variance1 mark) i Direct labour rate variance. (1 mark) (iv) Direct labour efficiency variance. (1 mark) (b) The workers at Ryde Company are disgruntled with the standard hours set for direct labour. They believe that a direct labour standard of 1.5 hours per unit is unrealistic as it doesn't take into account accepted stoppages to deal with problems in the production process. Management, however, believes standard will help to inspire improvement in production practices. (i) Identify and define the sort of standard management is setting for their staff. (2 marks) (i) Identify one advantage and one disadvantage of management's approach to standard setting (as you identified in part (i)), with specific reference to the issues raised by both the workers and management (2 marks)
Explanation / Answer
Part b (as required only answered as mentioned in the question)
(i) Looking at the direct labor hour set by management (1.5hrs/unit) as compared to actuals (Actual Prod/Actual hours = 1.8 hrs/unit) it gives an impression that management thinks there are inefficiencies in labor force and hence tightening of work culture is required and hence a stricter labor hour standard per unit.Management's view and basis of setting up of standard seems to be vindicated by the fact that variations in the material rate is only 5% (2.10 vs 2.0) but in case of labor it turns out to be 20% ( 1.5 vs 1.8).
(ii) Advantage: Management's approach is that of following the standard ways / steps for executing the work by each worker every time an action is initiated.This shall ensure efficiency in work and bring in controlled cost enviornment which would transalate into better profits.
Disdvantage: Whilst the intent of the management is fair but the 'human factor' needs to be taken into account.Humans although can work on standard ways but cannot be considered absolutely machines.Moreso there is a risk of labor unrest in the process if the workmen are disgruntled.The standard has to be gradually improved and balanced keeping the labor also into confidence.Any sort of labor unrest is to take away all the gains.