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At the start of the year, Chiller Ice estimated that the company would produce 480 portable ice makers during the year (40 per month). Annual
At the start of the year, Chiller Ice estimated that the company would produce 480 portable ice makers during the year (40 per month). Annual fixed overhead costs were estimated to be $600,000 ($50,000 per month), and estimated variable overhead costs were estimated to be $500 per unit. Standard cost per unit was set at $3,450: Standard material cost Standard labor cost Standard overhead rate per unit Total $1,200 500 1.750 $3.450 During the year, the company experienced stiff competition and ended up producing and selling only 400 ice makers. Budgeted annual total production costs were $1,656,000, and actual production costs were $1,616,400. The standard cost variances were as follows: Material price variance Material quantity variance Labor rate variance Labor efficiency variance Controllable overhead variance Overhead volume variance Total $ 2,200 unfavorable 11,500 unfavorable (2,300) favorable 4,800 unfavorable 2,000 unfavorable 100,000 unfavorable $118.200 unfavorable Suppose you are the CFO of Chiller Ice and you have decided to investigate variances which exceed a threshold of 1/2 percent of the total budgeted production cost. Which variance(s) will you investigate? Explain the basis for your answer. Comment briefly on the notion whether large variances would have any impact the strategic cost advantage of the company
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