Comprehensive variance analysis, responsibility issues (CMA, adapted) Styles, Inc. manufactures a full line of well-known sunglasses frames and lenses. Styles uses a standard costing system to set attainable standards for direct materials, labor, and overhead costs. Styles 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 Image prestige line of sunglasses have caused some concern. For no apparent reason, unfavorable materials and labor variances have occurred. At the monthly staff meeting, Jack Barton, manager of the Image line, will be expected to explain his variances and suggest ways of improving performance. Barton will be asked to explain the following performance report for 2008:

Barton collected the following information:

Three items comprised the standard variable manufacturing costs in 2008:

• Direct materials: Frames. Static budget cost of $49,500. The standard input for 2008 is 3.00 ounces per unit.
• Direct materials: Lenses. Static budget costs of $139,500. The standard input for 2008 is 6.00 ounces per unit.
• Direct manufacturing labor Static budget costs of $135,000. The standard input for 2008 is 1.20 hours per unit

Assume there are no variable manufacturing overhead costs.

The actual variable manufacturing costs in 2008 were:

• Direct materials: Frames. Actual costs of $55,872. Actual ounces used were 3.20 ounces per unit.
• Direct materials: Lenses. Actual costs of $150,738. Actual ounces used were 7.00 ounces per unit.
• Direct manufacturing labor Actual costs of $145,355. The actual labor rate was $14.80 per hour.

Prepare a report that includes:

(a)  Selling-price variance

(b)  Sales-volume variance and flexible-budget variance for operating income in the format of the analysis in Exhibit 7-2

(c)  Price and efficiency variances for:

• Direct materials: frames
• Direct materials: lenses
• Direct manufacturing labor

2.   Give three possible explanations for each of the three price and efficiency variances at Styles in requirement 1c.

Transcribed Image Text:

Actual Results Static-Budget Amounts Units sold Revenues Variable manufacturing costs Fixed manufacturing costs Gross margin 7,275 $596,550 351,965 108,398 136,187 7,500 S600,000 324,000 112,500 163,500