Variance Analysis from Fragmentary Evidence Being a bright young person, you have just landed a wonderful job
Question:
Variance Analysis from Fragmentary Evidence Being a bright young person, you have just landed a wonderful job as assistant controller of Gyp-Clip, a new and promising division of Croding Metals Corporation. The Gyp-Clip Division has been formed to produce a single product, a new-model paper clip. Croding Laboratories has developed an extremely springy and lightweight new alloy, Clypton, which is expected to revolutionize the paper-clip industry.
Gyp-Clip has been in business one month; it is your first day on the job.
The controller takes you on a tour of the plant and explains the operation in detail: Clypton wire is received on two-mile spools from the Croding mill at a fixed price of $40 a spool, which is not subject to change. Clips are bent, cut, and shipped in bulk to the Croding packaging plant. Factory rent, depreciation, and all other items of fixed factory overhead are handled by the home office at a set rate of $100,000 per month. Ten thousand tons of paper clips have been produced, but this is only 75 percent of denominator activity, since demand for the product must be built up.
The controller has just figured out the month’s variances; she is looking for a method of presenting them in clear, logical form to top management at the home office. You say that you know of just the method, and promise to have the analysis ready the next morning.
Filled with zeal and enthusiasm, feeling that your future as a rising star in this growing company is secure, you decide to take your spouse out to dinner to celebrate the trust and confidence that your superior has placed in you.
Upon returning home, with the flush of four martinis still upon you, you are horrified to discover your dog happily devouring the controller’s figure sheet. You manage to salvage only the following fragments:
You remember that the $35,000 variance did not represent the grand total of all variances. You also recall that variance analysis was easier to tackle by expressing items in terms of hours rather than units.
Don’t let the controller think you’re a knucklehead; go ahead and make up your analysis of all variances.
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