Wildcat Pizza, Inc. produces batches of frozen pizzas to sell at a variety of grocery stores throughout the country. Standard cost information for each batch is presented as follows: Direct materials $60.00 Direct labor 40.00 Variable overhead 30.00 Total $130.00 Wildcat produced and sold 100,000 batches for the year and encountered the following production variances: Direct materials price variance (300,000) Favorable Direct materials quantity variance 290,000 Unfavorable Direct labor rate variance (170,000) Favorable Direct labor efficiency variance (140,000) Favorable Variable overhead spending variance 150,000 Unfavorable Variable overhead efficiency variance (210,000) Favorable Total variable production cost variance (380,000) Favorable Company policy is to investigate all unfavorable variances above 5 percent of the flexible budget amount for direct materials, direct labor, and variable overhead. Identify the variances that should be investigated according to company policy. Show calculations to support your answer. What recommendations would you make for the company’s current policy? Identify the highest favorable variance and highest unfavorable variance and provide one possible cause of each variance. Sarah Longmeadow, the owner of Wildcat Pizza, reviewed the company’s variance analysis report. The materials price variance of $(300,000) was the most significant favorable variance for the month, and the materials quantity variance of $290,000 was the most significant unfavorable variance. Sarah would like to reward the company’s purchasing agent for achieving such substantial savings by giving her a $2,000 bonus while not providing any bonus for the production manager. Do you agree with Sarah’s approach to awarding bonuses? Explain. What circumstances might lead to the conclusion that the purchasing agent should not receive a bonus?

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter10: Standard Costing And Variance Analysis

Section: Chapter Questions

Problem 26BEA: Use the following information to complete Brief Exercises 10-25 and 10-26: Tico Inc. produces...

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Wildcat Pizza, Inc. produces batches of frozen pizzas to sell at a variety of grocery stores throughout the country. Standard cost information for each batch is presented as follows:

Direct materials	$60.00
Direct labor	40.00
Variable overhead	30.00
Total	$130.00

Wildcat produced and sold 100,000 batches for the year and encountered the following production variances:

Direct materials price variance	(300,000)	Favorable
Direct materials quantity variance	290,000	Unfavorable
Direct labor rate variance	(170,000)	Favorable
Direct labor efficiency variance	(140,000)	Favorable
Variable overhead spending variance	150,000	Unfavorable
Variable overhead efficiency variance	(210,000)	Favorable
Total variable production cost variance	(380,000)	Favorable

Company policy is to investigate all unfavorable variances above 5 percent of the flexible budget amount for direct materials, direct labor, and variable overhead.

Identify the variances that should be investigated according to company policy. Show calculations to support your answer.
What recommendations would you make for the company’s current policy?
Identify the highest favorable variance and highest unfavorable variance and provide one possible cause of each variance.
Sarah Longmeadow, the owner of Wildcat Pizza, reviewed the company’s variance analysis report. The materials price variance of $(300,000) was the most significant favorable variance for the month, and the materials quantity variance of $290,000 was the most significant unfavorable variance. Sarah would like to reward the company’s purchasing agent for achieving such substantial savings by giving her a $2,000 bonus while not providing any bonus for the production manager.

Do you agree with Sarah’s approach to awarding bonuses? Explain.
What circumstances might lead to the conclusion that the purchasing agent should not receive a bonus?

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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