Kilgore Precision Machining (KPM) has a highly automated manufacturing process for producing a…

Kilgore Precision Machining (KPM) has a highly automated manufacturing process for producing a variety of auto parts. Through the use of computer-aided manufacturing and robotics, the company has reduced its labour costs to only 5 per cent of total manufacturing costs. Consequently, the company does not account for labour as a separate item but instead accounts for labour as part of overhead.

Consider a part used in antilock braking systems. The static budget for producing 750 units in March 20X1 is as follows

Supplies and power are variable and the other overhead items are fixed costs. Actual costs in March 20X1 for producing 900 units of the brake part were as follows:

1 Compute (a) the direct-materials price and quantity variances and (b) the flexible-budget variance for each overhead item.

2 Comment on the way KPM accounts for and controls factory labour.

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