variances based on planning model This is a eontinuation of Ralph's LP, most reeently problem 13 above. Ralph deeides, upon further refleetion, two signifieant errors were made in speeifying the originaI LLAs. The first produet's selling price should have been 610 per unit

(instead of 6(0); and the first produet' s direet material standard should have allowed 6.5 (instead of 6) units of direet material per unit of output. Use the revised LLAs to eonstruet a hindsight profit plan, and determine all relevant variances. Be certain to separate performance relative to the revised plan into price/eo st and quantity effeets. Interpret your results.

Now suppose we ehange one additional standard, the direet material standard for the seeond produet. Suppose Ralph also deeides, based on hindsight, that the seeond produet should require 7.5 (instead of 10) units of direet material. Again eonstruet a hindsight optimal profit plan and determine all relevant variances. Be certain to separate performance relative to the revised plan into price/eost and quantity effeets. Again, interpret your results.

Contrast your varianees with those that would be identified by a "traditional"

profit variance analysis.

AppendixLO1