59. Variable Production Cost Variance Analysis and Performance Evaluation. Deerfield Plastics, Inc., produces plastic snow shovels....
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
59. Variable Production Cost Variance Analysis and Performance Evaluation. Deerfield Plastics, Inc., produces plastic snow shovels. Variable overhead is applied to products based on machine hours. The company uses a just-in-time production system and thus has insignif- icant inventory levels at the end of each month. The income statement for the month of January comparing actual results with the flexible budget is shown below based on actual sales of 10,000 units: Sales Variable cost of goods sold Variable selling and administrative expenses Contribution margin Fixed cost of goods sold Fixed selling and administrative expenses Net profit $ Deerfield Plastics, Inc. Income Statement (budget versus actual) Actual 305,000 $ 108,700 76,000 120,300 53,000 38,000 29,300 $ Budget 300,000 $ 100,000 70,000 130,000 55,000 35,000 40,000 $ Variance Direct materials (12 pounds per unit at $0.50 per pound) Direct labor (0.20 hours at $15 per hour) Variable overhead (0.10 machine hours at $10 per hour) (5,000) Favorable 8,700 Unfavorable 6,000 Unfavorable 9,700 Unfavorable (2,000) Favorable 3,000 Unfavorable 10,700 Unfavorable Deerfield Plastics, Inc., is disappointed with the actual results and has hired you as a con- sultant to provide further information as to why the company has been struggling to meet budgeted net income. Your review of the previously presented budget versus actual analysis identifies variable cost of goods sold as the main culprit. The unfavorable variance for this line item is $8,700. After further research, you are able to track down the standard cost information for variable production costs: Standard Cost per Unit 6 3 1 Actual production information related to variable cost of goods sold for the month of January is as follows: 10,000 units were produced and sold. 150,000 pounds of material was purchased and used at a total cost of $67,500. 1,900 direct labor hours were used during the month at a total cost of $30,400. 1,200 machine hours were used during the month. Variable overhead costs totaled $10,800. Required: a. Calculate the materials price variance and materials quantity variance using the format shown in Figure 10.2. Clearly label each variance as favorable or unfavorable. b. Calculate the labor rate variance and labor efficiency variance using the format shown in Figure 10.3. Clearly label each variance as favorable or unfavorable. c. Calculate the variable overhead spending variance and variable overhead efficiency vari- ance using the format shown in Figure 10.4. Clearly label each variance as favorable or unfavorable. d. List each of the six variances calculated in requirements a, b, and c, and total the variances to show one net variance. Clearly label the net variance as favorable or unfavor- able. Explain how this net variance relates to variable cost of goods sold on the income statement. e. Identify the highest favorable variance and highest unfavorable variance from the six listed in requirement d, and provide one possible cause of each variance. f. Jan Phalen, the manager at Deerfield Plastics, Inc., reviewed the company's variance analysis report for the month of January. The materials price variance of $(7,500) was the most significant favorable variance for the month, and the materials quantity vari- ance of $15,000 was the most significant unfavorable variance. Jan would like to reward the company's purchasing agent for achieving such substantial savings by giving him a $2,000 bonus while not providing any bonus for the production manager. 1. Do you agree with Jan's approach to awarding bonuses? Explain. 2. What circumstances might lead to the conclusion that the purchasing agent should not receive a bonus for the month of January? 59. Variable Production Cost Variance Analysis and Performance Evaluation. Deerfield Plastics, Inc., produces plastic snow shovels. Variable overhead is applied to products based on machine hours. The company uses a just-in-time production system and thus has insignif- icant inventory levels at the end of each month. The income statement for the month of January comparing actual results with the flexible budget is shown below based on actual sales of 10,000 units: Sales Variable cost of goods sold Variable selling and administrative expenses Contribution margin Fixed cost of goods sold Fixed selling and administrative expenses Net profit $ Deerfield Plastics, Inc. Income Statement (budget versus actual) Actual 305,000 $ 108,700 76,000 120,300 53,000 38,000 29,300 $ Budget 300,000 $ 100,000 70,000 130,000 55,000 35,000 40,000 $ Variance Direct materials (12 pounds per unit at $0.50 per pound) Direct labor (0.20 hours at $15 per hour) Variable overhead (0.10 machine hours at $10 per hour) (5,000) Favorable 8,700 Unfavorable 6,000 Unfavorable 9,700 Unfavorable (2,000) Favorable 3,000 Unfavorable 10,700 Unfavorable Deerfield Plastics, Inc., is disappointed with the actual results and has hired you as a con- sultant to provide further information as to why the company has been struggling to meet budgeted net income. Your review of the previously presented budget versus actual analysis identifies variable cost of goods sold as the main culprit. The unfavorable variance for this line item is $8,700. After further research, you are able to track down the standard cost information for variable production costs: Standard Cost per Unit 6 3 1 Actual production information related to variable cost of goods sold for the month of January is as follows: 10,000 units were produced and sold. 150,000 pounds of material was purchased and used at a total cost of $67,500. 1,900 direct labor hours were used during the month at a total cost of $30,400. 1,200 machine hours were used during the month. Variable overhead costs totaled $10,800. Required: a. Calculate the materials price variance and materials quantity variance using the format shown in Figure 10.2. Clearly label each variance as favorable or unfavorable. b. Calculate the labor rate variance and labor efficiency variance using the format shown in Figure 10.3. Clearly label each variance as favorable or unfavorable. c. Calculate the variable overhead spending variance and variable overhead efficiency vari- ance using the format shown in Figure 10.4. Clearly label each variance as favorable or unfavorable. d. List each of the six variances calculated in requirements a, b, and c, and total the variances to show one net variance. Clearly label the net variance as favorable or unfavor- able. Explain how this net variance relates to variable cost of goods sold on the income statement. e. Identify the highest favorable variance and highest unfavorable variance from the six listed in requirement d, and provide one possible cause of each variance. f. Jan Phalen, the manager at Deerfield Plastics, Inc., reviewed the company's variance analysis report for the month of January. The materials price variance of $(7,500) was the most significant favorable variance for the month, and the materials quantity vari- ance of $15,000 was the most significant unfavorable variance. Jan would like to reward the company's purchasing agent for achieving such substantial savings by giving him a $2,000 bonus while not providing any bonus for the production manager. 1. Do you agree with Jan's approach to awarding bonuses? Explain. 2. What circumstances might lead to the conclusion that the purchasing agent should not receive a bonus for the month of January?
Expert Answer:
Answer rating: 100% (QA)
To analyze the variable cost of goods sold variance and understand why Deerfield Plastics Inc has been struggling to meet budgeted net income we need ... View the full answer
Related Book For
Cost Accounting Foundations and Evolutions
ISBN: 978-1111971724
9th edition
Authors: Michael R. Kinney, Cecily A. Raiborn
Posted Date:
Students also viewed these accounting questions
-
Variable Production Cost Variance Analysis Iron Products Inc. produces prefabricated iron fencing used in commercial construction. Variable overhead is applied to products based on direct labor...
-
LLJ Satellites: Variance Analysis and Budgeting Jack Childs is nervous about his company's future performance. The Childs family own 40% of the shares of LLJ Satellites, and generally has control...
-
27 13. Name-4 Abdominal Quadrants and 9 Abdominopelvic Regions using the PowerPoint Number Quadrant 1 2 3 4 Number Region 1 2 D. Bladder: E. Small Intestine: F. Spleen: G. Pancreas: 34 5 6 Tolla 7 8...
-
What are examples of defined-contribution plans? How do they differ from defined-benefit plans?
-
Demonstrate graphically how a falling price level can destabilize an economy.
-
A company issues a \(10 \%\) coupon bond that matures in 5 years. However, this company is in trouble, and it is estimated that each year there is a probability of .1 that it will default that year....
-
The chapter states that forecasts of financial statements should rely on the additivity within financial statements and the articulation across financial statements to avoid internal inconsistencies...
-
Oriole Manufacturing's sales decreased significantly in 2021 due to increased online purchasing. The company's income statement showed the following results from selling 386,000 units of product: Net...
-
Using the Public MACRO BITCOIN scorecard spreadsheet (linked in its associated masterclass lesson - Long Term 32), create a COPY of it and perform a complete analysis for the date 22/2/2022....
-
The accountant of Bayu Laut Corporation, a producer of electronic appliances, has collected the following information for the purpose of preparing budgets for the first quarter of 2022: 1. Projected...
-
Find the Nielsen ratings for the past week. What were the three most popular television shows? Explain the meaning of the rating and the share for each show.
-
The times required by students to complete a statistics test. State whether the data described are discrete or continuous and explain why?
-
The exact amounts of cola in different cans Levels of Measurement. State whether the data described are discrete or continuous and explain why?
-
The weights of checked bags on flights between San Francisco and Atlanta. State whether the data described are discrete or continuous and explain why?
-
A clinical trial of a new drug designed to treat hypertension (high blood pressure) is designed to last for three years, but after the first year it becomes clear that the drug is highly successful....
-
Following an automobile accident, a 16-year-old boy who had recently escaped from a detention center was brought to the hospital emergency department by ambulance. The patient seemed to be alert and...
-
For a Poisson process of rate , the Bernoulli arrival approximation assumes that in any very small interval of length , there is either 0 arrivals with probability 1- or 1 arrival with probability ....
-
Dayton Industrial produces a variety of chemicals that are used in an array of commercial applications. One popular product, a chemical solvent, contains two very caustic acids, A and B, each of...
-
Logen Construction builds standard prefabricated wooden frames for walls. Each frame requires five direct labor hours and the standard hourly direct labor rate is $ 18. During July, the company...
-
Prior to the 2012 Super Bowl, a Boston-area retailer ordered 50,000 T- shirts that read: New England Patriots2012 Super Bowl Champs. The company paid $ 11.75 for each of the custom T- shirts....
-
Identify something you own, perhaps even something you still use regularly. a. Give a list of at least six reasons why you might consider replacing the identified item. b. Identify at least two...
-
A company owns a 6-year-old gear hobber that has a book value of \($60,000.\) The present market value of the hobber is \($80,000.Anew\) gear hobber can be purchased for \($450,000.\) Using an...
-
Ten reasons why companies use equipment long after replacements would be justified economically. In many cases, these reasons do not apply just to companies; rather, they apply to us as individuals....
Study smarter with the SolutionInn App