In: Accounting
Your supervisor has asked you to prepare some calculations based on the company’s data and then research publicly available similar competitor information to see how your company is performing within the industry. Your company, CarryIt Inc., produces mass quantity, inexpensive tote bags for promotional marketing purposes, which is a very competitive business.
Here is the available data for your company:
You are also able to find an industry profile report via a Dun & Bradstreet database that has selected data from a few other companies in similar businesses as well as some industry statistics.
Here’s the data available:
Unit Variable Cost Item | Star Company | GoldBag Corporation | PromoTotes LLC | Industry Data |
---|---|---|---|---|
Labor hours | .35 | .20 | .30 | .30 |
Labor rate | $11.25 | $11.95 | $12.50 | $11.65 |
Materials input | .45 yds. | .675 yds. | .50 yds. | .55 yds. |
Materials price | $1.65/yd. | $1.35/yd. | $1.55/yd. | $1.50/yd. |
Variable OH rate | $6.00 per direct labor hour | $5.25 per direct labor hour | $4.70 per direct labor hour | $5.45 per direct labor hour |
In Microsoft Excel, compute the following measures:
Write your observations about how CarryIt’s performance stacks up to its competition from the benchmarking exercise, Include suggestions for areas of improvement and comments on areas where the company does well.
1. The below information is provided per company and for the industry
Information | |||||
Item | Carryit Inc | Star Comp | Gold Bag | Promotes | Industry |
Labour hours reqd per unit | 0.2500 | 0.3500 | 0.2000 | 0.3000 | 0.3000 |
Labour rate per hour | 11.7500 | 11.2500 | 11.9500 | 12.5000 | 11.6500 |
Material input required per unit - yards | 0.5000 | 0.4500 | 0.6750 | 0.5000 | 0.5500 |
Material Price per yard | 1.5000 | 1.6500 | 1.3500 | 1.5500 | 1.5000 |
Variable overhead rate per labour hour | 5.0000 | 6.0000 | 5.2500 | 4.7000 | 5.4500 |
2. Basis the above, variable cost per unit is derive as per the formula mentioned
Variable cost per unit | |||||
Particulars | Carryit Inc | Star Comp | Gold Bag | Promotes | Industry |
Labour cost for 1 unit = labour hours/unit x rate per hour | 2.9375 | 3.9375 | 2.3900 | 3.7500 | 3.4950 |
Material cost for 1 unit = Yards per unit x cost per yard | 0.7500 | 0.7425 | 0.9113 | 0.7750 | 0.8250 |
Variable OH cost = variable OH rate hour hour x labour hours required for 1 unit | 1.2500 | 2.1000 | 1.0500 | 1.4100 | 1.6350 |
Total Variable Cost | 4.9375 | 6.7800 | 4.3513 | 5.9350 | 5.9550 |
3. Percentage of the total for each component (materials, labor, and variable overhead)
% on Variable Cost |
|||||
Particulars |
Carryit Inc |
Star Comp |
Gold Bag |
Promotes |
Industry |
Labour Cost = Labour cost/ Total Variable Cost |
59% |
58% |
55% |
63% |
59% |
Material Cost = Material cost/ Total Variable Cost |
15% |
11% |
21% |
13% |
14% |
Variable OH Cost = Variable cost/ Total Variable Cost |
25% |
31% |
24% |
24% |
27% |
4. What are the price and efficiency variances for direct materials and direct labor for each company compared to Industry
Variance - negative = favourable, positive= unfavourtable | ||||
Particulars | Carryit Inc | Star Comp | Gold Bag | Promotes |
Labour Price Variance => Actual hours reqd x (Actual rate /hour - Industry rate/hour) | 0.0250 | (0.1400) | 0.0600 | 0.2550 |
Labour Effeciency Variance => (Actual labour hours reqd per unit - Industry labour hour reqd per unit ) x industry labour rate / hour | (0.5825) | 0.5825 | (1.1650) | - |
Labour Cost Variance | (0.5575) | 0.4425 | (1.1050) | 0.2550 |
Material Price Variance => Actual yards reqd x (Actual rate /yd - Industry rate/yd) | - | 0.0675 | (0.1013) | 0.0250 |
Material Effeciency Variance => (Actual yards reqd per unit - Industry yards reqd per unit ) x industry rate per yard | (0.0750) | (0.1500) | 0.1875 | (0.0750) |
Material Cost Variance | (0.0750) | (0.0825) | 0.0863 | (0.0500) |
5. Percentage over standard by company and by variance?
Particulars | Carryit Inc | Star Comp | Gold Bag | Promotes |
Labour Cost = (Actual Lab cost- Industry Labour cost)/ Ind Labour Cost | -15.95% | 12.66% | -31.62% | 7.30% |
Material Cost (Actual Mat cost- Industry Mat cost)/ Ind Mat Cost | -9.09% | -10.00% | 10.45% | -6.06% |
Variable OH Cost= (Actual Var OH cost- Industry Var OH cost)/ Ind Var OH Cost | -23.55% | 28.44% | -35.78% | -13.76% |
Total Variable Cost | -17.09% | 13.85% | -26.93% | -0.34% |
6. Observations
a. The variable cost per unit for Carryis lesser than industry benchmark across each Labour, Material and Variable Overhead which is good.
b. However on overall basis, Goldbag has the least variable cost with lesser labour cost and variable overhead cost.
c. Basis Goldbag benchmark, company can identify areas for improvement in labour cost and variable over head cost and aim for making the varibale cost per unit the least in the sector.
d. The material cost is also lesser per unit for Star Comp. This can also be taken as a benchmark to reduce Carryit material cost.