Basics of Variance Analysis, Variable Inputs Basuras Waste Disposal Company has a long-term 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 200,000 new containers each year (about 20% of the total households). Several years ago, Basuras decided to manufacture its own containers as a cost-saving 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: Standard Standard Price Standard Quantity (rate in $) Lost Direct materials 14 Ibs. $ 3.5 Direct labor 1.7 hrs. 14 23.8 Variable overhead 1.7 hrs. 8.5 Total $72.8 During the first week in January, Basuras had the following actual results: Units produced 8.000 Actual labor costs $198.800 Actual labor hours 14 200 Materials purchased and used 1 10,000 Ibs. @ $3.55 4 Actual variable overhead costs $ 88,400 The purchasing agent located a new source of slightly higher-quality 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 higher-quality material has no effect on labor utilization. However, the new manufacturing process was expected to reduce materials usage by 0.25 pound per container.1. Conceptual Connection: Compute the mater that the 0.25 pound per container reduction of materi urred as expected and that the remaining effects are all attributable to the higher-quality material. Would you recommend that the or should the usual quality be purchased? A ssume that the qualit of the end product is not affected significantly. Price Favorable , Unfavorable or Neither Usage Favorable , Unfavorable or Neither Select the effect . The new process saves money or costs more money Enter the net amount of the effect. Select the correct decision. Use the higher-qualityor original material 2. Conceptual Connection: Compute the labor rate and efficiency variances, A ning that the labor variances are attributable to the new manufacturing process, should it be continued or discontinued? In answering, consider the new process's materials reduction effect as well. If an amount is zero, enter "of Rate Favorable , Unfavorable or Neither Efficiency Favorable , Unfavorable or Neither Select the effect. The new process saves money or costs more money Enter the overall net amount of the effect. Select the correct decision. Discontinue or continue the new process Conceptual Connection: Refer to Requirement 2. Suppose that the industrial engineer argued that the new process should not be evaluated after only one week. His 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 k and that the actual labor hours were 11,000 and the labor cost was $154,000. Should the new process be adopted? Assume the variances are attributable to the new process. Assuming production of 8,000 units per projected annual savings? (Include the materials reduction effect. ) If an amount is zero, enter "0 Rate Favorable, Unfavorable or Neither Efficiency Favorable , Unfavorable or Neither Select the effect. The new process saves money or costs more money Enter the annual amount of the effect. Select the correct decision. Discontinue or continue the new process