ANALYSIS, INTERPRETATION & RECOMMENDATION

In this section of the exam, please avoid unnecessary detail. Be clear and specific in responding to questions or in identifying areas for further investigation:

You are the Senior Analyst in the Planning Department of a manufacturing firm, following is a variance report prepared at the end of a reporting cycle that has been submitted to you. It is your responsibility to do the necessary analysis and to prepare the report to be submitted to Senior Management:

Variance Analysis and Report

Period:

Variances F U Net

Direct Materials: - Price $ 275

- Quantity $156

Direct Labour - Rate 923

- Efficiency 3,720

Manufacturing Overhead:

Applied on the basis of Direct Labour

Overhead Variable: - Spending 355

- Efficiency 802

Fixed: - Budget 1,000

• Volume 625

Totals: $1,275 $6,581

Standards for the purchase and use of Direct Materials, Direct Labour, and Manufacturing Overhead are provided:

The company used the following manufacturing standards/actual Per Unit:

* Direct Material Std: 2metres @$1.56 per metre

Purchased 2500m used 2,000m

* Direct Labour Std: 1.25Hours @ $16.00per hour

Worked 1420 Hrs

* MOH Variable Std: 1.25Hours @ $3.45 per DLH

Applied on the basis of DLHs

- Fixed: 1.25 Hrs @$10.00 based on capacity to produce 1,000 units

Excerpts from the General Ledger follow:

Actual Budget/Standard Output/Standard

Direct Materials

Purchase $3,625 $3,900

Use 3,120 2,964

Direct Labour 23,643 22,720 19000

Manufacturing Overhead: VC

5,254 4,899 4097

FC

11,500 12,500 11,875

Required:

1. Before you can prepare the actual report, identify the items from the Variance Analysis & Report that you will wish to analyse. Do not make assumptions. For each one, state what additional information you will require, and why you wish more info..

2. Outline the steps you will take to investigate the items you identified in 1).above

3. List three(3) people(by job title), to whom you will wish to speak. What will you ask them? why?

1. What does Efficiency mean when referred to in Direct Labour Efficiency Variance, and Variable Overhead Efficiency Variance? Are they the same thing?

What are the implications of the Budget and the Volume Variance in Fixed Overhead? What is the potential danger in saving costs in Fixed Overhead?

2. Can you make any recommendations at this point, or would you need to do further analysis? Why?