Comprehensive Variance Analysis NOTE: No Excel template is provided for this pro

Question

Comprehensive Variance Analysis

NOTE: No Excel template is provided for this problem. Please create your own spreadsheet to calculate the solution.

Timmer Bachman founded the Bachman Corporation over 25 years ago. The company's genesis was spurred by the unique climbing apparatus developed by Timmer, an avid mountaineer. Bachman Corporation has continued to produce that first product, but it has now diversified into other outdoor activity equipment as well. In fact, the vast majority of the company's revenues are now accounted for by sales of nonclimbing products. Timmer is considering whether his company should continue producing and selling some of its oldest products, all of which relate to mountain climbing.

To begin his decision-making process, Timmer has asked the company's controller, Marin Hennesy, to accumulate data on the original locking carabiner that set the company on its way. Accordingly, Marin accumulated the following data for last year:

Budgeted production and sales: 5,000 carabiners.

Actual production and sales: 6,000 carabiners.

The standard for a carabiner requires 1.5 ounces of material at a budgeted cost of $1.52 per ounce and two hours of assembly and testing time at a cost of $12.50 per hour.

The carabiner sells for $32 each.

Actual production costs for the 6,000 carabiners totaled $12,900 for 8,600 ounces of materials and $161,700 for 13,200 labor hours.

Required:

If required, round your answers to two decimal places. Enter all amounts as positive numbers. Do not round your intermediate calculations.

A. What was the budgeted contribution margin per carabiner?
$  per unit

B. What was the actual contribution margin per carabiner?
$  per unit

C. What was Bachman's flexible budget variance?
$  SelectFavorableUnfavorable

D. What was Bachman's direct material price variance?
$   SelectFavorableUnfavorable

E. What was Bachman's direct material usage variance?
$   SelectFavorableUnfavorable

F. What was Bachman's direct labor rate variance?
$   SelectFavorableUnfavorable

G. What was Bachman's direct labor efficiency variance?
$   SelectFavorableUnfavorable

H. What would the sales price variance be if each carabiner sold for $33?
$   SelectFavorableUnfavorable

I. On the basis of the available information, should Bachman continue making the carabiner?

Explanation / Answer

(A)

Budgeted contribution margin (CM) per unit = Budgeted selling price - Budgeted unit total variable cost

Budgeted total material cost ($) = 5,000 units x 1.5 ounce per unit x $1.52 per ounce = $11,400

Budgeted total labor cost ($) = 5,000 units x 2 hours per unit x $12.50 per hour = $125,000

Total budgeted variable cost = $(11,400 + 125,000) = $136,400

Budgeted unit total variable cost = $136,400 / 5,000 = $27.28

So, Budgeted CM per unit = $(32 - 27.28) = $4.72

(B)

Actual CM per unit = Selling price - Actual unit total variable cost

Actual total material cost = $12,900

Actual total labor cost = $161,700

Total actual variable cost = $(12,900 + 161,700) = $174,600

Actual unit total variable cost = $174,600 / 6,000 = $29.1

Actual CM per unit = $(32 - 29.1) = $2.90

(C)

Flexible budget variance ($) = Actual cost for actual units - Budgeted cost for actual units

= 174,600 - (6,000 x 27.28) = 174,600 - 163,680 = 10,920 (Unfavorable)

(D)

Direct material price variance = Actual quantity x (Actual rate - Standard rate)

= Actual total material cost - (Actual quantity x Standard rate)

= $12,900 - (6,000 x 1.5 x $1.52) = $(12,900 - 13,680) = $780 (Favorable)

(E)

Direct material usage variance = Standard rate x (Actual quantity - Standard quantity)

= $1.52 x [8,600 - (6,000 x 1.5)] = $1.52 x (8,600 - 9,000) = $1.52 x 400 = $608 (Favorable)

Note: First 5 sub-parts are answered.

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