W5 Acct DQ, AssgnP1 and p2
See attachs. for Assgn.
dq: Shared Practice: Variance Analysis
Several tools are available to managers when evaluating organizational performance. Variance analysis is one such tool used to evaluate performance. Variance analysis compares actual costs with standard costs. The results from a variance analysis are important for helping managers control costs as well as identify areas were organizational performance and efficiency can be improved.
To prepare for this Discussion: Shared Practice, review the Learning Resources for this week and reflect on how actual costs, standard costs, and variance analysis will contribute to your current or future role as a manager or in decision making. Consider the role of variances when engaged in decision making and how variance analysis might help contribute to improved organizational efficiency.
Post the following:
- Describe a scenario in which there are both highly favorable and highly unfavorable variances. Be sure to include the actual and standard costs in your scenario.
- Analyze how and why you, as a manager, would prioritize the variances for analysis and how knowing these variances might help you improve efficiency.
Note: Your scenario should be different from those posted previously by your colleagues.
By
Respond to two or more of your colleagues in one or more of the following ways:
- Provide insights or contrasting observations regarding the variances presented by your colleagues.
- Comment on a scenario presented and provide additional insight into the method presented and/or propose a different method for making the decision along with your rationale for choosing that method.
Week 5 assignment & template Part 1, Part 2
·
Part 1: Calculate all materials and labor variances in a spreadsheet by using a program like Excel. Be sure to include price, quantity, wage rate, and labor efficiency variances.
· Please include the formulas as it is in the template.
· Part 2: Prepare a memo to your subordinate, using a program like Word.
· Summarize and analyze the actual costs in relation to the standard costs incurred for the month.
· Ask for clarification of any variances that need to be investigated.
· Be sure to include whether alternatives exist for the future of the organization and
· explain how the results of the variance analysis might influence those alternatives.
Hint: See the Weekly Briefing as well as the Injection Molding Department self-study problem on page 562 of your text.
Assignment
ComfortRight, Inc. is a manufacturer of high-quality products designed to help support healthy backs and spines. Their newest product offering is a massage chair. Below is the standard cost structure for the chair:
Standard Cost Sheet
Quantity
Price
Total
Metal tubing (meters)
6
$ 3.50
$21.00
Leather (square meters)
4
$ 5.00
$20.00
Padding (kilograms)
5
$ 3.50
$17.50
Direct labor (hours)
4
$ 15.00
$60.00
Total standard cost
$118.50
This month, ComfortRight manufactured 500 massage chairs. The following costs were incurred:
Actual Costs Incurred (500 chairs)
Quantity
Cost
Metal tubing (meters)
3,050
$11,285
Leather (square meters)
2,100
$10,920
Padding (kilograms)
2,550
$9,435
Direct labor (hours)
1,800
$27,360
$59,000
Adapted from: Zimmerman, J. L. (2014). Accounting for decision making and control (8th ed.). New York: NY: McGraw-Hill, “Healing Touch”, p. 565.
Suppose you are the senior controller for ComfortRight and you plan to perform a variance analysis of the massage chairs manufactured to determine if the standards are being met. Once you have completed the analysis, you plan to show it to the production department manager and ask for an explanation of any variances that you believe should be examined.
· Template
·
2020 Week 5 Template_Fall Term 1.xlsx
(12.3kb)
Template
| Week 5 Template | ||||||||||||||||||||||
| a) | Price variance | |||||||||||||||||||||
| Actual price | Standard price | Quantity bought | Favorable or Unfavorable | |||||||||||||||||||
| Metal tubing | ||||||||||||||||||||||
| Leather | ||||||||||||||||||||||
| Padding | ||||||||||||||||||||||
| b) | Wage rate variance | Actual wage rate | ||||||||||||||||||||
| Standard wage | Actual hours | |||||||||||||||||||||
| Direct labor | ||||||||||||||||||||||
| c)Total price variance | 0 | |||||||||||||||||||||
| d) | Quantity variance | |||||||||||||||||||||
| (actual quantity used in production – standard quantity used in production) times the standard price | ||||||||||||||||||||||
| Actual Quantity | Standard Quantity | Standard Price | ||||||||||||||||||||
| e) Labor efficiency variance = (actual hours – standard hours) times standard wage | ||||||||||||||||||||||
| Standard hours | Efficiency variance | |||||||||||||||||||||
| Direct labor | ||||||||||||||||||||||
| f) Total quantity variance | ||||||||||||||||||||||
| TOTAL VARIANCES | ||||||||||||||||||||||
| – 0 | ||||||||||||||||||||||
| TOTAL |
Template
| Week 5 Template | ||||||||||||||||||
| a) | Price variance | |||||||||||||||||
| Actual price | Standard price | Quantity bought | F | U | ||||||||||||||
| Metal tubing | 3.5 | 3 | 0 | 150 | ||||||||||||||
| Leather | 7.5 | 1000 | 20 | |||||||||||||||
| Padding | 4.3 | 4.25 | 1650 | 82.5 | ||||||||||||||
| b) | Wage rate variance | Actual wage rate | ||||||||||||||||
| Standard wage | Actual hours | Favorable or Unfavorable | ||||||||||||||||
| Direct labor | 15.5 | 1400 | 28 | |||||||||||||||
| c)Total price variance | 30.89 | 30.75 | 7050 | 280.5 | ||||||||||||||
| d) | Quantity variance | |||||||||||||||||
| (actual quantity used in production – standard quantity used in production) times the standard price | ||||||||||||||||||
| Actual Quantity | Standard Quantity | Standard Price | ||||||||||||||||
| 1500 | 637.5 | |||||||||||||||||
| e) Labor efficiency variance = (actual hours – standard hours) times standard wage | ||||||||||||||||||
| Standard hours | Efficiency variance | |||||||||||||||||
| Direct labor | -1550 | |||||||||||||||||
| f) Total quantity variance | -912.5 | |||||||||||||||||
| TOTAL VARIANCES | ||||||||||||||||||
| 720 | ||||||||||||||||||
| (1,522) | ||||||||||||||||||
| TOTAL | (632) |
Template
| Week | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| a) | Price variance | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Actual price | Standard price | Quantity bought | F | U | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Metal tubing | $ 3.15 | $ 3.00 | 3,000 | $ | 455 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leather | $ 7.35 | $ 7.00 | 1,050 | $ 372.00 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Padding | $ 4.10 | $ 3.90 | 1,600 | $ 320.00 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| b) | Wage rate variance | Actual wage rate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Standard wage | Actual hours | Favorable or Unfavorable | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Direct labor | $ 15.58 | $ 15.00 | 1750 | $ 1,020.00 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| c)Total price variance | 30.1888095238 | 28.9 | 7400 | 2167 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| d) | Quantity variance | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (actual quantity used in production – standard quantity used in production) times the standard price | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Actual Quantity | Standard Quantity | Standard Price | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3000 | $0.00 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1050 | 1000 | $350.00 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1600 | 1500 | $390.00 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| e) Labor efficiency variance = (actual hours – standard hours) times standard wage | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Standard hours | Efficiency variance | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Direct labor | 2000 | -3750 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| f) Total quantity variance | -3010 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TOTAL VARIANCES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 722 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 710 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (2,730) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TOTAL | (843) |
Sheet1
2
2
This Photo by Unknown Author is licensed under CC BY-NC-ND
| To: |
John Gliese, Production Department Manager |
| From: |
Vincient M. Cleamons, Senior Controller |
| cc: |
William T. Harmon, Chief Executive Officer |
| Date: |
February 7, 2020 |
| Re: |
Massage Chairs (Product #MC09954A) Manufacturing Variance Analysis for January 2020 |
Calculations for a variance analysis in manufacturing 500 massage chairs (#MC09954A) during January 2020 are shown in the attached spreadsheet. This analysis shows a comparison of the benchmark expenditures (standard costs) with the actual costs involved in manufacturing the chairs. The constituents of manufacturing costs include labor and materials (refer to
Table
1
).
Table 1
Manufacturing Data for 500 Massage Chairs During January 2020
Items Actual Manufacturing Data Standard Manufacturing Data
Metal Tubing 3000 meters 3000 meters
Leather 1050 square meters 1000 square meters
Padding 1600 kilograms 1500 kilograms
Labor Hours 1750 2000
Labor Wages $27,265.00 $30,000.00
Cost per Chaira $54.54. $60.00
Note. Manufacturing materials, labor hours, labor wages, and cost per chair are illustrated in the table. aIncludes labor wages and the costs of materials (metal tubing, leather, and padding).
The information in Table 1 and the data for the variance analysis in the attached spreadsheet helps management ascertain the alignment of actual manufacturing expenditures for 500 massage chairs to the benchmarks (standard costs) established by the company. The variances for material usage were unfavorable. This unfavorable variance indicated that more materials were used to manufacture the massage chairs than the quantities specified in the benchmarks. However, the benchmark requires four hours of labor at $15.00 per hours to produce one massage chair. Consequently, the benchmark requirements produce 0.25 massage chairs per hour at $15.00 per hour ($60.00 to produce one chair). Therefore, to produce 500 massage chairs at benchmark standards, it would take 2,000 labor hours total. In contrast, the actual labor to produce 500 massage chairs for January was only 1750 hours (cost savings of $2,730). The 1750 labor hours resulted in a favorable variance because the actual total labor hours expended were below the benchmark. Therefore, the company may want to make changes in the wage rate to counterbalance the time productivity benefit, while also evaluating the material variances (i.e., material usage).
Though Body Comfort cannot control the fluctuations in material costs, the research of Miao, Du, Jiao, and Zhang (2017) and Whitehouse (2019) presented algorithms for controlling material costs in manufacturing operations. I suggest the company consider the respective research studies in developing cost-reduction measures. Please let me know how I can further assist management is these endeavors.
References
Miao, C., Du, G., Jiao, R. J., & Zhang, T. (2017). Coordinated optimization of platform-driven
product line planning by bilevel programming. International Journal of Production Research, 55(13), 3808-3831. doi:10.1080/00207543.2017.1294770
Whitehouse, S. (2019, April). 6 ways to control process manufacturing costs. WinMan ERP.
Retrieved from http://www.winman.com/blog/6-ways-to-control-process-manufacturing-costs
1
Running head: MEMO 1
MEMO 2
Memorandum
Walden University
Memo
TO: Production Department Manager
FROM:
CC:
DATE: 2020
SUBJECT: Variance Price and Cost Analysis
The objective of this memo is to investigate cost efficiencies and inefficiencies during the production of massage chairs through variance analysis. According to Dili (2017), variance analysis helps in promoting and maintaining control over a business. As a result, I applied countless variance analysis techniques to understand better the budget and actual amounts of the massage chairs.
During the analysis in examining the cost of producing 500 chairs, we scheduled the price for a 6-meter chair to cost around 3 dollars, but what was paid was 3.05 dollars a chair. Besides, there was unfavorable variance amounting to 155 dollars for metal and 22 dollars for leather. We budgeted that for two square meter chairs to be at 7 dollars, but what was paid was 7.02 dollars. The estimated amount of padding was set at 4 dollars for every 3 kilograms. What was paid for the filling was 4.10 dollars. The padding for the massage chairs was found to have an unfavorable variance that amounted to 160 dollars, while that of direct labor was 270 dollars. I then proceeded to identify the cost of labor. Initially, we had projected that the cost of labor would cost an average price of 15 dollars, however, the cost of work increased by 15 cents; as a result, the amount paid was 15.15 dollars. According to Zimmerman (2014), examining such differences between the actual and budgeted costs helps in making decisions for corrective action.
In the analysis, the labor efficiency variance was $ 40,950 implying that most of the materials used were of high quality and the laborers hired were highly skilled. As a result, the wage rate variance stood at $4,090.50 which was deemed unfavorable. Lastly, the analysis showed that there was an increase in prices during the supply of the materials and also the mishandling of materials. To reduce the rise in pricing, I recommend that the department reduces the consumption rate and negotiate pricing with suppliers
References
Dilli. (2017). Difference Between Actual Cost and Standard Cost | Compare the Difference Between Similar Terms. Retrieved 9 February 2020, from
Zimmerman, J. L. (2014). Accounting for decision making and control (8th ed.). New York, NY: McGraw-Hill