Question

While many organizational costs can be planned for, the actual results may vary from the initial projections. Assessing how these variances impact the bottom line is an essential task of many managers.

For this Assignment, review the information in the scenario posted in the entry titled Week 5 Assignment located in the Doc Sharing link. You will utilize the information in this week’s Resources and your course text to consider how variance analysis and the results obtained from conducting such an analysis might impact decision making. There is also an Excel template provided in the same entry in the Doc Sharing link that you may find helpful in completing this Assignment.

The Assignment:

• 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.
• 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.

Week 5 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
Total cost		$59,000

Adapted from: Zimmerman, J. L. (2014). Accounting for decision making and control (8^th 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.

Answer 1

answers:-

part 1:

material variance table:
	metal tubing	leather	padding
material price variance	-610 UF	-420 UF	-510 UF
material quantity variance	-175 UF	-500 UF	-175 UF
total material variance	-785 UF	-920 UF	-685 UF

note: UF = unfavourable

labor variance table
direct labor rate variance	360 favorable
direct labor efficiency variance	-800 unfavourable
total labor variance	-440 unfavourable

formulas used for calculation:

1. material price variance = (standard unit cost-actual unit cost)xactual quantity purchased

2. actual unit cost = actual price/actual quantity

3. material quantity variance = (standard quantity - actual quantity)Xstandard price.

4. direct labor price variance = (actual cost per DL hour-standard cost per DL hour)xactual quantity

5. direct labor efficiency variance = (actual DL hours-standard DL hours)xstandard rate per hour.

part 2:

summary:

1. Actual cost incurred in relation to for all materials is unfavorable for the month. as material price variance is negative and unfavourable. also, actual quantity of material incurred is unfavourable for the month, as material quantity variance is unfavourable.

2. Actual cost of labor incurred is favorable for the month but labor efficiency is unfavorable.

from the variance analysis, it is clear that, actual unit cost of materials is greater than the standard. so, the company needs to investigate why the materials was purchased at a greater price per unit. also, more quantity of material was purchased than needed to produce 500 units. labor efficiency was also not favourable. company needs to investigate why labor was not working efficiently.

proper budgeting techniques may help the company reduce their unfavourable variances. budgeting helps in acquiring materials and recruiting labor according to the plans of the company. this may help in reducing materal and labor variances.