Concept explainers
- 1. Compute the actual and budgeted contribution margins in dollars for each product and in total for the third quarter of 2017.
Required
- 2. Calculate the actual and budgeted sales mixes for the three products for the third quarter of 2017.
- 3. Calculate total sales-volume, sales-mix, and sales-quantity variances for the third quarter of 2017. (Calculate all variances in terms of contribution margins.)
- 4. Given that your CEO gets very angry if actual results differ from budget, you want to be well prepared for this meeting. In order to prepare, write a paragraph or two comparing actual results to budgeted amounts.
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- The worksheet you have developed will handle most simple variance analysis problems. Try the problem below for Pscheidl, Inc.: Actual production for October was 11,500 units. Compute the direct materials and direct labor variances for Pscheidl, Inc. Be careful when entering your input because this problem presents the information in a different format from the McGrade Industries data. Save the file as PRIMEVAR4. Print the worksheet when done.arrow_forwardPat James, the purchasing agent for a local plant of the Oakden Electronics Division, was considering the possible purchase of a component from a new supplier. The component’s purchase price, $0.90, compared favorably with the standard price of $1.10. Given the quantity that would be purchased, Pat knew that the favorable price variance would help to offset an unfavorable variance for another component. By offsetting the unfavorable variance, his overall performance report would be impressive and good enough to help him qualify for the annual bonus. More importantly, a good performance rating this year would help him to secure a position at division headquarters at a significant salary increase. Purchase of the part, however, presented Pat with a dilemma. Consistent with his past behavior, Pat made inquiries regarding the reliability of the new supplier and the part’s quality. Reports were basically negative. The supplier had a reputation for making the first two or three deliveries on…arrow_forwardLynx Corp. manufactures windows and doors. Lynx has been using a standard cost system that bases cost and efficiency standards on Lynx’s historical long-run average performance. Suppose Lynx’s controller has engaged your team of management consultants to advise him or her whether Lynx should use some basis other than historical performance for setting standards. Requirements List the types of variances you recommend that Lynx compute (for example, direct materials cost variance for glass). For each variance, what specific standards would Lynx need to develop? In addition to cost standards, do you recommend that Lynx develop any nonfinancial standards? There are many approaches to setting standards other than simply using long-run average historical costs and quantities. a. List three alternative approaches that Lynx could use to set standards, and explain how Lynx could implement each alternative. b. Evaluate each alternative method of setting standards, including the pros and cons…arrow_forward
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- Rouse manufactures coffee mugs that it sells to other companies for customizing with their own logos. Rouse prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost of a coffee mug is based on static budge volume of 59,700 coffee mugs per month: Requirement 1. Compute the cost and efficiency variances for direct materials and direct labor. Begin with the cost variances Select the required formulas, compute the cost variances for direct materials and direct labor and identify whether each variance is favorable (F) or unfavorable (U). (Abbreviations used AC = actualco cost AQ = actual quantity, FOH = fixed overheard; SC = standard cost; SQ= standard quantity.)arrow_forwardThe Chocolate Cow Ice Cream Company has grown substantially recently, and management now feels the need to develop standards and compute variances. A consulting firm was hired to develop the standards and the format for the variance computation. One standard in particular that the consulting firm developed seemed too excessive to plant management. The consulting firm’s standard was production of 100 gallons of ice cream every 45 minutes. The plant’s middle level of management thought the standard should be 100 gallons every 55 minutes, while the top management of the company thought that the consulting firm’s standard would provide more motivation to the employees. Why is the company establishing a standard for production? What are some factors the company may need to consider before selecting one of the proposed standards?arrow_forwardStandard Costing; Variance Analysis; Strategic Considerations In a Wall Street Journalarticle, the author notes that various retailers in the United States (e.g., Meijer, Gap, and OfficeDepot) are turning to consulting firms, such as Accenture, to develop engineered labor standards forcashiers and other retail workers. Monitoring labor-hour consumption (i.e., labor efficiency) undersuch standards involves timing from the first scan of an item in a customer’s purchase to the production of a sales receipt for the customer. A commentator for Meijer states that the system now in usehas enabled the company to more efficiently staff stores while concomitantly increasing customerservice ratings. A representative from another client of Accenture states that the new system allowsthe retailer to determine how many workers to schedule at a given time, resulting in a labor-costreduction of approximately 8%. Engineered standards were developed many years ago in a manufacturing environment, at…arrow_forward
- Activity-based costing, batch-level variance analysis. The Saluki Company specializes in making fraternity and sorority Tshirts for the college market. Due to the high setup costs for each batch printed, Saluki holds the T-shirt requests until demand is approximately 100 shirts. At that point Saluki will schedule the setup and production of the shirts. For rush orders, Saluki will produce smaller batches for an additional charge of $175 per setup.arrow_forwardIn the book Advanced Managerial Accounting, Robert P. Magee discusses monitoring cost variances. A cost variance is the difference between a budgeted cost and an actual cost. Magee describes the following situation: Michael Bitner has responsibility for control of two manufacturing processes. Every week he receives a cost variance report for each of the two processes, broken down by labor costs, materials costs, and so on. One of the two processes, which we'll call process A , involves a stable, easily controlled production process with a little fluctuation in variances. Process B involves more random events: the equipment is more sensitive and prone to breakdown, the raw material prices fluctuate more, and so on. "It seems like I'm spending more of my time with process B than with process A," says Michael Bitner. "Yet I know that the probability of an inefficiency developing and the expected costs of inefficiencies are the same for the two processes. It's just the magnitude of…arrow_forwardFeel soft Beauty cosmetics manufacturing company produces two products, Sunscreen and Moisturizer creams. The company gives the following information. Products Standard Quantity (Units) Standard Price ($) Actual Quantity (Units) Actual Price ($) Sunscreen 40 50 50 50 Moisturizer 60 40 60 45 Required to Calculate the following Feel soft Beauty cosmetics co. Material Price variance Material cost variance Material usage variance Explain the following variances. Sales mix variance Sales volume variance Explain the term divisional performance and explain any two common measures of divisional performance.arrow_forward
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