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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?
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With respect to interim reporting, FASB addresses examples of costs that benefit more than one accounting period (i.e., month) and how these costs should be accounted for on interim reports. Please provide three examples of these types of costs, the requirement for reporting them, and also indicate which FASB rule governs the application of the process.
Type of assignment: Academic paper writing
Type of assignment: Essay
Number of sources: 5
Academic level: Bachelor
Paper format: APA
Line spacing: Double
Language style: US English