(CMA adapted) Allglow Company is a cosmetics manufacturer specializing in stage makeup The company's best selling product is to protect the skin from frequent use of makeup. SkinKlear is packaged in three sizes—8 ounces, one pound, and three pounds—and regularly sells for $21 .00 per pound. The standard cost per pound of SkinKlear, based on Allglow's normal monthly production of 8.000 pounds, is as follows:

Based on these standard costs, Allglow prepares monthly budgets. Presented below are the budgeted perfonnance and actual perfonnance for May 19x6 when the company produced and sold 9,000 pounds of SkinKlear.

Barbara Simmons, Allglow's President, was not pleased with these results; despite a sizeable increase in the sales of SkinKlear, there was a decrease in the product's contribution to the overall profitability of the finm. Barbara has asked AllgloWs Cost Accountant Brian Jackson, to prepare a report that identifies the reasons why the contnbution margin for SkinKlear has decreased. Brian has gathered the infomiation presented in the next column to help in the preparation of the report.

While doing his research, Brian discovered that the Manufacturing Department had mechanized one of the manual operations in the compounding process on an experi- mental basis. The mechanized operation replaced manual operations that represented 40 percent of the compounding process. The workers' inexperience with the mechanized operation caused increased usage of both the cream base and the moisturizer; however, Brian believed these inefficiencies would be negligible if mechanization became a permanent part of the process and the workers' skills were improved. The idle time in compounding was traceable to the fact that fewer workers were required for the mechanized process. During this experimental period, the idle time was charged to direct labor rather than overhead. The excess work- ers could either be reassigned or laid off in the future. Brian also was able to determine that all the variable manufacturing overhead costs over standard could be traced directly to the mechanization process.

REQUIRED:

1. Prepare an explanation of the $3,600 unfavorable variance between the budgeted and actual contribution margin for SkinKlear during May 19x6 by calculating the fol- lowing variances. 1. Sales price variance. 2. Materials price variance. 3. Materials quantity variance. 4. Labor efficiency variance. 5. Variable overhead efficiency variance. 6. Variable overhead spending variance. 7. Contribution margin volume variance. 2. Allglow Company must decide whether or not the compounding operation in the SkinKlear manufacturing process that was mechanized on an experimental basis should continue to be mechanized. Calculate the variable cost savings that can be expected to arise in the future from the mechanization. Explain your answer.

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Cost Item Quantity Cream base 9.0 oz. Unit Cost .05/oz. Standard Total Cost Moisturizer 6.5 oz. .10/oz. $ .45 .65 Fragrance .5 oz. 1.00/oz 50 $ 1.60 Direct labor* Mixing Compounding .5 hr 1.0 hr. $4.00/hr. $ 2.00 5.00/hr. 5.00 $ 7.00 Variable overhead** 1.5hr $2.10/hr $ 3.15 $11.75 Total standard cost per pound *Direct labor dollars include employee benefits. **Applied on the basis of direct labor hours.