Comprehensive variance analysis (CMA) Iceland, Inc. is a fast-growing ice-cream maker. The company’s new ice-cream flavor, Cherry Star, sells for $8 per pound. The standard monthly production level is 200,000 pounds, and the standard inputs and costs per pound are:

Molly Cates, the CDO, is disappointed with the results for May 2009, Prepared based on these standard costs.

Cates notes that despite a sizable increase in the pounds of ice cream sold in May, Cherry Star’s contribution to the company’s overall profitability has been lower than expected. Cates gathers the following information to help analyze the situation:

If you want to use Excel to solve this problem, go to the Excel Lab at www.prenhall.com/horngren/cost13e and download the temple for Problem 7-41. Compute the following variances. Comment on the variances, with particular attention to the variances that may be related to each other and the controllability of each variance:

1. Selling-price variance

2. Direct materials price variance

3. Direct materials efficiency variance

4. Direct manufacturing labor efficiency variance

Standard Quantity per Unit Costs Cost Item Pound of Ice Cream 2 3 Direct materials 10 oz. $ 0.02 loz. Cream 4 0.15 loz. 0.50 loz. 5 oz. Vanilla Extract 1 oz. Cherry 8 Direct manufacturing labor Preparing Stirring 1 min. 14.40 /hr. 6. 2 min. 18.00 /hr. 10 11 b. 32.40 /hr. 12 Variable overhead 3 min. 13 14 Direct manufacturing labor rates include employee benefits. 15 Allocated on the basis of direct manufacturing labor-hours.