Please help me answer question #1 A,B,C,D and question #2 on a short pharagraph.
ID: 2350435 • Letter: P
Question
Please help me answer question #1 A,B,C,D and question #2 on a short pharagraph.The plant manager decides that what is needed is an objective appraisal of what should be done. He hires June Collins of Collins and Collins, CPAs. June recommends that the Charlotte plant should use standard cost variance analysis. While not all three product managers agree that this is the best course of action the plant manager makes the final decision and asks June to perform the analysis. June asks that the three product managers aggregate their production information. The following schedule is the result of the request.
Variance Analysis
Variance Stated as Variance
(Recycled material)
Materials Price Variance Per ounce price Unfavorable
Materials Quantity Variance Ounce per unit Favorable
(Non-recycled material)
Material Price Variance Price per package Favorable
Material Quantity Variance Usage per unit Unfavorable
Labor Rate Variance Per hour Favorable
Labor Efficiency Variance Time per unit Favorable
Required:
1. Explain what could have happened on A, B, C, D, how the above variances could explain the following:
A) Scrap Material decreased(recycled material)
B)Return Orders increased (Non-recycled material)
C) Ordering cost for non-recycled material increased
D) Average Unit Cost decreased Loss of customers
2. Write a short memo explaining how management could use variance analysis to improve productivity.
Explanation / Answer
SOlution:
The plant manager decides that what is needed is an objective appraisal of what should be done. He hires June Collins of Collins and Collins, CPAs. June recommends that the Charlotte plant should use standard cost variance analysis. While not all three product managers agree that this is the best course of action the plant manager makes the final decision and asks June to perform the analysis. June asks that the three product managers aggregate their production information. The following schedule is the result of the request.
Variance Analysis
Variance Stated as Variance
(Recycled material)
Materials Price Variance Per ounce price Unfavorable
Materials Quantity Variance Ounce per unit Favorable
(Non-recycled material)
Material Price Variance Price per package Favorable
Material Quantity Variance Usage per unit Unfavorable
Labor Rate Variance Per hour Favorable
Labor Efficiency Variance Time per unit Favorable
Required:
1. Explain how the above variances could explain the following:
Scrap Material decreased(recycled material) AS the material quantity variance is favorable, it means that it would have been used less than anticipated.
Return Orders increased (Non-recycled material) Due to saving in usage of material which is indicated by favorable material quantity variance and unfavorable material price variance shows the better quality of goods have been used therefore the customers would have ordered again and again, thus return order increased.
Ordering cost for non-recycled material increased the unfavorable price variance would have increases the cost of the material, and one of the reasons may too many orders.
Average Unit Cost decreased Loss of customers the favorable variance for material and labor would be more than the price variance of both element of cost, therefore the cost would be on lower side, thus the selling price is based on cost, due to lower selling price, the loss of customers would have been decreased.
2. Write a short memo explaining how management could use variance analysis to improve productivity.
Variance analysis is the technique to control activities of the business. It is calculated by comparing actual result with standard or budgeted figures. It indicates where the problem may be, it does not tell the reason of problem, and however it helps in highlighting the major areas of differences. As it is not possible for a company to find out the reason or begin investigation, on the basis of small variance, therefore a variance tolerance limit is set for each activity. If the variance is beyond the limit, the reason is to be found out, so the remedial actions may be taken. The reason for variances may be broadly classified into two types, one is internal and other is external. For internal variances, the improvement can be done, but external reasons are not controllable, the external reason, compels to make necessary adjustments in future standards and targets.
As sometimes, variances are related to each other therefore the reason for one favorable variance may result in unfavorable variance of other department. For example, the purchase price variance is favorable, but it may not be good as the cheaper quality of the good would have been bought, which would have resulted in unfavorable quantity variance. Like this the unfavorable labor rate variance may be good as the highly skilled labor would have been hired by paying more in dollars, but the labor efficiency variance was favorable due to expensive labor.
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