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Basics of Variance Analysis, Variable Inputs Basuras Waste Disposal Company has a long - term contract with several large cities to collect garbage and trash
Basics of Variance Analysis, Variable Inputs
Basuras Waste Disposal Company has a longterm contract with several large cities to collect garbage and trash from residential customers. To facilitate the collection, Basuras places a large plastic container with each household. Because of wear and tear, growth, and other factors, Basuras places about new containers each year about of the total households Several years ago, Basuras decided to manufacture its own containers as a costsaving measure. A strategically located plant involved in this type of manufacturing was acquired. To help ensure cost efficiency, a standard cost system was installed in the plant. The following standards have been established for the product's variable inputs:
Line Item Description Standard
Quantity Standard Price
rate in $ Standard
Cost
Direct materials lbs $ $
Direct labor hrs
Variable overhead hrs
Total $
During the first week in January, Basuras had the following actual results:
Line Item Description Numerical Data Additional Data
Units produced
Actual labor costs $
Actual labor hours
Materials purchased and used lbs @ $
Actual variable overhead costs $
The purchasing agent located a new source of slightly higherquality plastic, and this material was used during the first week in January. Also, a new manufacturing process was implemented on a trial basis. The new process required a slightly higher level of skilled labor. The higherquality material has no effect on labor utilization. However, the new manufacturing process was expected to reduce materials usage by pound per container.
Required:
Note: Enter a negative variance and net effects beginning with a minus sign. Select from the adjacent dropdown list the appropriate designation FUN or effectdecision choice.
Conceptual Connection: Compute the materials price and usage variances. Now, assume that the pound per container reduction of materials occurred as expected and that the remaining effects are all attributable to the higherquality material. Would you recommend that the purchasing agent continue to buy this quality, or should the usual quality be purchased? Assume that the quality of the end product is not affected significantly.
Line Item Description Answer
Price $fill in the blank
Unfavorable
Usage $fill in the blank
Favorable
Select the effect.
The new process saves money
Enter the net amount of the effect. $fill in the blank
Select the correct decision.
Use higher quality material.
Conceptual Connection: Compute the labor rate and efficiency variances. Assuming that the labor variances are attributable to the new manufacturing process, should it be continued or discontinued? In answering, adjust given data for the new process then evaluate the net effect and the correct decision. If an amount is zero, enter
Line Item Description Answer
Rate $fill in the blank
Unfavorable
Efficiency $fill in the blank
Unfavorable
Select the effect.
The new process costs more money
Enter the overall net amount of the effect. $fill in the blank
Select the correct decision.
Continue the new process.
Conceptual Connection: Refer to Requirement Suppose that the industrial engineer argued that the new process should not be evaluated after only one week. The reasoning was that it would take at least a week for the workers to become efficient with the new approach. Suppose that the production is the same the second week and that the actual labor hours were and the labor cost was $ Should the new process be adopted? Assume the variances are attributable to the new process. Assuming production of units per week, what would be the projected annual savings? Include the materials reduction effect. If an amount is zero, enter
Line Item Description Answer
Rate $fill in the blank
Unfavorable
Efficiency $fill in the blank
Favorable
Select the effect.
The new process saves money.
Enter the annual amount of the effect. $fill in the blank
Select the correct decision.
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