Question

Weaver Industries produces storage tanks for the oil and gas industry. Maria Jones, the corporate controller, is not satisfied with the standard costing system of the organization. The standard cost information given below was derived from consultants hired by Weaver Industries in the prior year. Jones has been observing operations and believes the standard costs are not accurate as the factory workers have a lot of idle time and she seldom observes material unfavorable variances. Budgeted direct material and labor costs: Containers produced: 5000. Direct materials price per square feet: Aluminum: $2.75. Plastic: $1.25. Direct materials per unit: Aluminum (square feet): 18. Plastic (square feet): 6. Direct labor hours per unit: 2.1. Direct labor cost per hour: $11.80. Actual amounts: 4,600 containers were actually produced. Cost of aluminum: $282,000 (95,593 square feet). Cost of plastic: $49,170 (32,400 square feet). Direct labor cost for the containers were $117,000 (9,810 hours). No beginning or ending direct material inventory was on hand. Instructions For this assignment, complete the following: Calculate the price and efficiency variance for the containers for aluminum, plastic, and direct labor. Using the completed analysis, create a 3-5 page memo to the company's CEO that addresses the following: Provide an interpretation of the variance. Identify some of the potential causes of the variances. Describe how this variances analysis can assist management in controlling and forecasting future costs.

Answer 1