Boreal’s assembly plant budgeted 12,000 frames at a cost of 2,160,000 and built 11,000 frames, which the stores ordered, at a cost of 2,010,000. The plant manager should be judged against:
Boreal’s assembly plant budgeted 12,000 frames at a cost of 2,160,000 and built 11,000 frames, which the stores ordered, at a cost of 2,010,000. The plant manager should be judged against:
Answer
The budget flexed to 11,000 frames, at 1,980,000
Options - A. The original 2,160,000 — she beat it by 150,000 - B. The budget flexed to 11,000 frames, at 1,980,000 - C. Plant profit at the transfer price head office set - D. The Road division’s ROI, since her frames go into its bikes Why - A. The static budget is for a volume she did not build; the saving is mostly the missing 1,000 frames. - B. Correct — 2,160,000 ÷ 12,000 = 180 per frame × 11,000 = 1,980,000; she is 30,000 over at the volume she actually built. - C. She controls neither the transfer price nor the volume; profit fails controllability. - D. Divisional ROI is an investment-centre measure for a manager who controls assets and pricing.
OpenStax Accounting v2 §9.4; Hermanson Vol 2 ch 25; Heisinger & Hoyle §11.3 (segmented income)