7 38 30 min use of materials and manufacturing labor

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7-38 (30 min.) Use of materials and manufacturing labor variances for benchmarking. 1.Unit variable cost (dollars) and component percentages for each firm:Firm AFirm BFirm CFirm DDM$10.00 35.7%$10.73 25.2%$10.75 36.4%$11.25 32.3%DL11.25 40.2% 17.05 40.0% 12.80 43.3% 14.03 40.3%VOH6.7524.1% 14.8534.8% 6.0020.3% 9.5627.4%Total$28.00 100.0%$42.63 100.0%$29.55 100.0%$34.84 100.0%2.Variances and percentage over/under standard for each firm relative to Firm A:Firm BFirm CFirm D% over% over% overVariance standardVariance standardVariancestandardDM Price Variance0.98 U10.0%- -0.0%1.25 F-10.0%DM Efficiency Variance 0.25 F-2.5%0.75 U7.5%2.50 U25.0%DL Price Variance0.55 U3.3%0.80 U6.7%1.28 U10.0%DL Efficiency Variance5.25 U46.7%0.75 U6.7%1.50 U13.3%
3.To: BossFrom: JuniorAccountantRe: Benchmarking & productivity improvementsDate: October 15, 2010Benchmarking advantages- we can see how productive we are relative to our competition- we can see the specific areas in which there may be opportunities for us to reduce costsBenchmarking disadvantages- some of our competitors are targeting the market for high-end and custom-made lenses. I'm not sure that looking at their costs helps with understanding ours better- we may focus too much on cost differentials and not enough on differentiating ourselves, maintaining our competitive advantages, and growing our marginsAreas to discuss- we may want to find out whether we can get the same lower price for glass as Firm D- can we use Firm B’s materials efficiency and Firm C’s variable overhead consumption levels as our standards for the coming year?
7-39(60 min.)Comprehensive variance analysis review. Actual ResultsUnits sold (90% × 2,000,000)1,800,000Selling price per unit$4.80Revenues (1,800,000 × $4.80)$8,640,000Direct materials purchased and used:Direct materials per unit$0.80Total direct materials cost (1,800,000 × $0.80)$1,440,000Direct manufacturing labor:Actual manufacturing rate per hour $15Labor productivity per hour in units 250Manufacturing labor-hours of input (1,800,000 ÷ 250) 7,200Total direct manufacturing labor costs (7,200 × $15) $108,000Direct marketing costs:Direct marketing cost per unit $0.30Total direct marketing costs (1,800,000 × $0.30) $540,000Fixed costs ($850,000 -$30,000) $820,000Static Budgeted AmountsUnits sold 2,000,000Selling price per unit $5.00Revenues (2,000,000 × $5.00)$10,000,000Direct materials purchased and used:Direct materials per unit $0.85Total direct materials costs (2,000,000 × $0.85)$1,700,000Direct manufacturing labor:Direct manufacturing rate per hour$15.00Labor productivity per hour in units300Manufacturing labor-hours of input (2,000,000 ÷ 300)6,667Total direct manufacturing labor cost (6,667 × $15.00)$100,000Direct marketing costs:Direct marketing cost per unit$0.30Total direct marketing cost (2,000,000 × $0.30)$600,000Fixed costs$850,0001.Actual Static-BudgetResultsAmountsRevenues$8,640,000$10,000,000Variable costsDirect materials1,440,000 1,700,000Direct manufacturing labor108,000 100,000Direct marketing costs540,000600,000Total variable costs2,088,0002,400,000Contribution margin6,552,0007,600,000Fixed costs820,000850,000Operating income$5,732,000$6,750,0002.

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