The firm is an integrated waste management company in the Philippines with local government contracts for...

 

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The firm is an integrated waste management company in the Philippines with local government contracts for the collection of household garbage and trash in their areas. In line with the government's commitment to sustainability, local governments purchase from AWSI durable plastic drums and distribute them to households through the barangays. AWSI's annual requirement is 320,000 new durable plastic drums (about 25% of the total households). Considering the volume requirement, AWSI decided to put up a plant to manufacture the durable plastic drums. To maintain quality conformance in the plant AWSI implemented a standard cost system: Direct Material Quantity 15 pounds Price $ 90.00 1.9 hours 80.00 1.9 hours Direct Labor Variable Overhead Variable overhead in the plant is based on direct labor hours. Actual results for the first month are as follows: Units produced Materials purchased and used Actual labor costs Actual labor hours Cost 1,350.00 152.00 330.00 627.00 P 2,129.00 28,000 402,000 pounds at P 91.50 P 4,400,000 64,000 Actual variable overhead costs P 23,000,000 To ensure longer sustainable usage of the durable plastic drums, the purchasing manager is recommending a higher quality material that does not affect labor. As a result of the continual system and process improvement, the Production Manager will be implementing a material-saving process that will require workers with higher skills. Material usage reduction is about 1/3 per drum. Required 6. a. Determine the materials price and usage (quantity) variance if the new process is implemented. b. Analyze and explain the variances. Aside from quantitative reasons, what are the other possible causes of these variances? c. Which would you recommend the Purchasing Manager buy, higher-quality materials or the regular quality? The firm is an integrated waste management company in the Philippines with local government contracts for the collection of household garbage and trash in their areas. In line with the government's commitment to sustainability, local governments purchase from AWSI durable plastic drums and distribute them to households through the barangays. AWSI's annual requirement is 320,000 new durable plastic drums (about 25% of the total households). Considering the volume requirement, AWSI decided to put up a plant to manufacture the durable plastic drums. To maintain quality conformance in the plant AWSI implemented a standard cost system: Direct Material Quantity 15 pounds Price $ 90.00 1.9 hours 80.00 1.9 hours Direct Labor Variable Overhead Variable overhead in the plant is based on direct labor hours. Actual results for the first month are as follows: Units produced Materials purchased and used Actual labor costs Actual labor hours Cost 1,350.00 152.00 330.00 627.00 P 2,129.00 28,000 402,000 pounds at P 91.50 P 4,400,000 64,000 Actual variable overhead costs P 23,000,000 To ensure longer sustainable usage of the durable plastic drums, the purchasing manager is recommending a higher quality material that does not affect labor. As a result of the continual system and process improvement, the Production Manager will be implementing a material-saving process that will require workers with higher skills. Material usage reduction is about 1/3 per drum. Required 6. a. Determine the materials price and usage (quantity) variance if the new process is implemented. b. Analyze and explain the variances. Aside from quantitative reasons, what are the other possible causes of these variances? c. Which would you recommend the Purchasing Manager buy, higher-quality materials or the regular quality?

Answer rating: 100% (QA)

a To determine the materials price and usage quantity variance if the new process is implemented we can use the following formulas Materials Price Var... View the full answer