Question

Congratulations! Your work on the Air-Accountant shoes was so helpful that the company was bought out by Nike Inc and you made enough money you never have to work again! But...what fun would that be? So you started your own accounting consulting company called You Can Account On Us. Recently, you were hired by a company named Cow Hopp to help analyze budget variances. Information for Cow Hopp's Commemorative Milk Glasses is below: DMCA| Standard Quantity 10 lbs 225 hrs 225 hrs $300,000 estimated total 125.000 estimated units Standard Price Rate $ 195 perb $ 13.50 per hr $ 125 per hr Standard Unit Cost $ 351 $ 30.38 281 Var MOH(based on DL) Fixed MOH Additional data for the Milk Glasses is as follows: Units produced & sold 118.000 Pounds of day used 209.000 Total cost of clay $ 444.720 Labor hours worked 286.000 Total DL cost $ 3452.506 Total Var MOH Cost $ 368,970 Total Food MOH cost $ 296,000 You want to make a good impression on the folks at Cow Hopp so please produce a report showing the Quantity and Price variances for DM, DL, and Var MOH. In addition, please compute the volume and spending variances for Fixed MOH. Cow Hopp is considering a few changes. Please rerun your variances with the following changes: 1. Management has heard that material costs are starting to run higher. As a result, it has chosen to find a new supplier. It projects that with the new supplier, it could have purchased the clay for $2.00 per pound but it would have used 218,000 pounds to produce the same 118,000 units. Should management switch to the new supplier? 2. Management has also heard it is taking longer than expected to make these glasses. As a result, it plans to use labor that is more skilled. The new influx of skilled labor will take 264,000 hours to make the 118,000 glasses and will cost $3,498,000. Should management make this change?

Answer 1

There ara two ty ps of rect materal varance Dit matarial rice ranc Mrlnllynan Direct MaeiN Prire Varanre Standard prkce- Actusl orice Actual Cuantlty -195 2.0020000 2710) Direct Maaral Quantiky Varlance Standard prica Slardard Quanty -1111n-o Actual Qaty) 630 F Tatal Drect Materw Vsanee 19tandard prke Standard Quanthy) ctual price Actual Cuantity -20540 UK There are two wpes of cirect abourvarsnce artlahaur pce wananc aheqntty aran Direct Labour Prke Varlance (Standard r cTual eActual Hous werad 13.50 12.01"266000 -38320 nirnet labnuruantty Varianee Standard rstel Standard hours-Actual hours worked 11. 11n-oo 6750 Total direct Labourvarance -(Standard rata Standard hours-(Acoualrate Actal hours worked -12 25-13.5118020) 1298-286000 131570 ( Varamarlatuingnrthet wan Spending wariance y ar Variable overheadSpending wariance actualcost-Actal haurs ad ra) NO- . -229530(u Variabie Oerhead rficieney varisne Standard ratel actual hours-std hours) -125 1266000 2.25 1130001 625 F Fbeed Owerhead absorption rate Budeeledfand roduclon oerheet itutuledunts 24 pr unt Fleed ouerhrad vnlume varince Actual output oveheadrate -1800024 a00000 1630 budgeoed cost 0 F) Fleed overhead spendng variance clulowthead bualad d oarhed on-nmn -So00 Answer to aption 1 Direct Masdal Prke Variance Sandard pric-Actual price -195 2213000 Actual anlily 10000 ju Direct Maes uy Varnnee Standard price Sta ndard Quantty Actual Qua nety) 1 1 11 1 10920 i Tatal Direct Maneral Vaance Sandand pr andrd Qanlily- (Gctual pnce 1951811800 12 218000 ) 21820 Actua uaniy) No the management should not switch to newsuppler because the tatal matedal wariance rises by S (21820-20540 Le $12a0 Arerio Ciphinn Actual hours-26400 Acoual cot-3498000 Atualrate 13.25 Directabour Price Vaiance Standand rte-Actual wt -011-11.21/t2auo 65000 i Atu Hous Worlad Direct Labour Quantty Variance Standard ratel Standand hours Actual hours worked) 13.52.25 118003 264200 20250 Tatal direct Lsbourvariwnee -Sandardrate stardard hours(Aculrate Actal hours worked 1111 -115NAC 85250 IF Yes the management should sht to new labour as it glves all fawourable varaince.