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× Actual Actual Actual Price) Price) Price) Actual Actual Actual Input Input Input Qty. Qty. Qty. × Budgeted Budgeted Budgeted Price Price Price Flexible Flexible Flexible Budget Budget Budget (Budgeted (Budgeted (Budgeted Input Input Input Qty. Qty. Qty. Allowed Allowed Allowed for for for Actual Actual Actual Output Output Output × Budgeted Budgeted Budgeted Price) Price) Price) Setup Setup Setup 15,000 $ 75   $16,800 15,000 $ 75   $15,050 15,000 $ 100   $12,900 Actual Actual Actual Costs Costs Costs Incurred Incurred Incurred (Actual (Actual (Actual Input Input Input Qty. Qty. Qty. × Actual Actual Actual Price) Price) Price) Actual Actual Actual Input Input Input Qty. Qty. Qty. × Budgeted Budgeted Budgeted Price Price Price Flexible Flexible Flexible Budget Budget Budget (Budgeted (Budgeted (Budgeted Input Input Input Qty. Qty. Qty. Allowed Allowed Allowed for for for Actual Actual Actual Output Output Output × Budgeted Budgeted Budgeted Price) Price) Price) Quality Quality Quality Inspection Inspection Inspection 15,000 $ 100   $20,925 15,000 $ 100   $23,625 15,000 $ 120   $21,875 $3,900 U Flexible-budget variance $950 F Flexible-budget variance
7-44 2. Re: Explanation of Variances Below I explain the implications of the variances that I calculated. I would enjoy meeting with you to discuss whether we are following the most efficient policies, given these calculations. Please let me know if there is any way to improve my work or my presentation to you. 1. Our batch sizes for both setups and quality inspection were smaller than planned. Even though we were able to reduce the setup and quality inspection time needed for each batch (because of the smaller batch sizes), these gains were more than offset by the increased number of batches. Overall, we ended up substantially below the level of efficiency at which we wished to operate. 2. The hourly wage for the setup workers went over budget due to the tight labor market in our area for such employees. However, we saved a considerable amount of money because we were able to negotiate reduced wage rates for the quality inspection labor after the expiration of their previous contract. Overall, given our output level of 15,000 eels, we had a moderately favorable variance for quality inspection costs, and a significant unfavorable variance on setups, for the reasons outlined above. Thank you. 7-43 7-43 7-43 (30 min.) Price Price Price and and and efficiency efficiency efficiency variances, variances, variances, problems problems problems in in in standard-setting, standard-setting, standard-setting, benchmarking. benchmarking. benchmarking. 1. Budgeted direct materials input per shirt = 600 rolls ÷ 6,000 shirts= 0.10 roll of cloth Budgeted direct manufacturing. labor-hours per shirt (1,500 hours ÷ 6,000 shirts) = 0.25 hours Budgeted direct materials cost ($30,000 ÷ 600) = $50 per roll Budgeted direct manufacturing labor cost per hour ($27,000 ÷ 1,500) = $18 per hour Actual output achieved = 6,732 shirts Flexible Flexible Flexible Budget Budget Budget Actual Actual Actual Costs Costs Costs (Budgeted (Budgeted (Budgeted Input Input Input Incurred Incurred Incurred Qty. Qty. Qty. Allowed Allowed Allowed for for for (Actual (Actual (Actual Input Input Input Qty. Qty. Qty. Actual Actual Actual Input Input Input Qty. Qty. Qty. Actual Actual Actual Output Output Output × Actual Actual Actual Price) Price) Price) × Budgeted Budgeted Budgeted Price Price Price × Budgeted Budgeted Budgeted Price) Price) Price) Direct (612 × $50) (6,732 × 0.10 × $50) Materials $30,294 $30,600 $33,660 $306 F $3,060 F Price variance Efficiency variance Direct Manufacturing (1,530 × $18) (6,732 × 0.25 × $18) Labor $27,693 $27,540 $30,294 $153 U $2,754 F Price variance Efficiency variance
7-45 2. Actions employees may have taken include: (a) Adding steps that are not necessary in working on a shirt.

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