On January 1, 2007, Tom Clark was promoted to the position of production manager in Seattle Seafood Company. The firm purchases raw fish, cooks and processes it, and then cans it in signal-portion containers. The canned fish is sold to several wholesalers specializing in providing food to school lunch programs in the Northwest region of the United States and certain areas in Canada. All processing is conducted in the firm's highly automated plant in Parksville, British Columbia. Performance of the production manager is evaluated on the basis of a comparison of actual costs with standard costs. Only costs that are controllable by the production manager are included in the comparison (all are veriable). The cost of fish is noncontrollable. Standard costs per kilogram of canned fish for 2007 were set as follows:
Direct labour $0.50
Indirect labour 0.10
For 2007, the company purchased 2,500,000 kilogram of fish and canned 1,500,000 kilograms. There were no beginning or ending inventories of raw, in-process, or canned fish. actual 2007 costs were:
Direct labour $600,000
Indirect labour 155,000
Address the following.
a) prepare a performance report for Tom Clark for 2007.
b) Evaluate Tom Clark's performance based on your report.
c) Tom feels that his 2007 performance is so good that he should be considered for immediate promotion to the position of vice-president of operations. do you agree? explain.
d) Should additional performance measure (other than standard cost variances) be added to evaluate the production manager's performance? if so, identify the measures you would recommend?
The solution contains the preparation of performance report and evaluation of performance report and the factors that should be considered for giving promotion to the production manager.