Question: Ultra Inc manufactures a full line of well known sunglass

Ultra, Inc., manufactures a full line of well- known sunglass frames and lenses. Ultra uses a standard-costing system to set attainable standards for direct materials, labor, and overhead costs. Ultra reviews and revises standards annually, as necessary. Department managers, whose evaluations and bonuses are affected by their department’s performance, are held responsible to explain variances in their department performance reports.
Recently, the manufacturing variances in the Bravo prestige line of sunglasses have caused some concern. For no apparent reason, unfavorable materials and labor variances have occurred. At the monthly staff meeting, Stuart Forman, manager of the Bravo line, will be expected to explain his variances and suggest ways of improving performance. Forman will be asked to explain the following performance report for 2012:

Forman collected the following information:
Three items comprised the standard variable manufacturing costs in 2012:
• Direct materials: Frames. Static budget cost of $ 53,820. The standard input for 2012 is 3.00 ounces per unit.
• Direct materials: Lenses. Static budget costs of $ 93,600. The standard input for 2012 is 4.00 ounces per unit.
• Direct manufacturing labor: Static budget costs of $ 102,960. The standard input for 2012 is 1.10 hours per unit.
Assume there are no variable manufacturing overhead costs.
The actual variable manufacturing costs in 2012 were:
• Direct materials: Frames. Actual costs of $ 64,680. Actual ounces used were 4.40 ounces per unit.
• Direct materials: Lenses. Actual costs of $ 145,530. Actual ounces used were 6.00 ounces per unit.
• Direct manufacturing labor: Actual costs of $ 128,772. The actual labor rate was $ 14.60 per hour.

1. Prepare a report that includes the following:
a. Selling- price variance
b. Sales- volume variance and flexible- budget variance for operating income in the format of the analysis in Exhibit 13- 2
c. Price and efficiency variances for the following:
• Direct materials: frames
• Direct materials: lenses
• Direct manufacturing labor
2. Give three possible explanations for each of the three price and efficiency variances at Ultra in requirement1c.

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  • CreatedJanuary 15, 2015
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