The plant manager decides that what is needed is an objective appraisal of what
ID: 2344386 • Letter: T
Question
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)
Return Orders increased (Non-recycled material)
Ordering cost for non-recycled material increased
Average Unit Cost decreased
Loss of customers
b. Write a short memo explaining how management could use variance analysis to improve productivity.
Explanation / Answer
overall or net factory overhead variance needs further analysis to reveal detailed causes for the variance and to guide management toward remedial action. This analysis may be made by using (1) the two variance method, (2) the three variance method, or (3) the four variance method. The two variance method: When an overall or net factory overhead variance is further analyzed by using two variance approach, the following two variances are calculated: 1.Controllable variance 2.Volume variance The three variance method: When an overall or net factory overhead variance is further analyzed by using three variance approach, the following three variances are calculated: 1.Spending variance 2.Idle capacity variance 3.Efficiency variance The four variance method: When an overall or net factory overhead variance is further analyzed by using four variance approach, the following four variances are calculated: 1.Spending variance 2.Variable efficiency variance 3.Fixed efficiency variance 4.Idle capacity variance