Case 3: UP NY Diner

Janice Young is the kitchen manager for UP NY Diner, maker of Jed's Grouper Pasties. UP NY Diner got its start when Jed Baker, a snowbird from upper NY, tried grilled grouper during a winter stayover in South Florida. He was so impressed that he bought a pound of the fish at a farmer's market, froze it, and took it back to upper NY to share with his friends. He didn't have quite enough to make it a meal, so he served it in a pastie (pronounced Pass-T)a Northern New York traditional dish.Over time it became his tradition to serve grouper pasties each spring when he returned from the South. Eventually, he built a kiosk out of a shed mounted on a trailer and started having his grandkids sell Jed's Grouper Pasties at fairs and other summer events to help them pay for college. Within a few years the business had expanded enough to open a central kitchen to prepare pasties.

Because of health regulations, the pasties are prepared in a central kitchen managed by Janice Young. Janice is a great cook and longtime upper NY resident. She keeps things lively in the kitchen by telling UP jokes, eh? When things are too busy in the kitchen for her, she recruits relatives to help her out. Sometimes they aren't as precise in preparing the pasties as she would like, but when the orders come in, the pasties must be made.

Up until now, Jed hasn't worried too much about numbers. He knows a good pastie, and his emphasis has always been on the customer experience and having a fun time. But this summer his grandkids decide to put their college accounting to work and suggest that he try using variance analysis. It seemed like a good idea to use some kind of system to know if the pasties are being prepared properly, and the grandkids are persistent. Jed sits down with his budding management accountants and puts together a plan. A few day later, this is what they have:

The June budget, based on standard costs:

Budgeted Production	2,600 pasties
Direct materials	Dough$286 (0.25 Lbs. @ $0.44/Lb. x 2,600) Filling/spices$936 (0.75 Lbs. @ $0.48/Lb. x 2,600) Grouper fish--$5,200 (1/16 Lb. @ $32.00/Lb. x 2,600)
Direct Labor	$2,340 (0.05 DLH@ $18.00/Hr. x 2,600)
VOH	$1,875 (VOH allocated at $15.00 per DLH x 125 DLH)

At the end of the month, Jed's accountant sends him the following financial results (along with a bill for services):

Actual June performance of the central pastie kitchen:

Actual Production	2,500 pasties
Direct materials	Dough$315.00 (0.30 Lbs. @ $0.42/Lb. x 2,500) Filling/spices$1,050.00 (0.70 Lbs. @ $0.60/Lb. x 2,500) Grouper fish--$5,460.00 (.91 oz. @ $2.40/oz. x 2,500)
Direct Labor	$2,337.50 (0.055 DLH@ $17.00/Hr. x 2,500)
VOH	$1,893.00

Jed and his grandkids sit down and compare the actual numbers to the budget, and this is what they see:

UP NY Diner
Kitchen Performance Report
For the Month of June
	Actual	Budget	Variance
Direct Materials	Dough--$315.00 Filling/spices-- $1,050.00 Grouper fish--$5,460.00	Dough--$286.00 Filling/spices-- $936.00 Grouper fish--$5,200.00	$ 29.00 U $ 114.00 U $ 260.00 U
Direct labor	$2,337.50	$2,340.00	$ 2.50 F
Variable OH	$1,893.00	$1,875.00	$ 18.00 U
Total	$11,055.50	$10,637.00	$ 418.50 U

Jed takes a look at the numbers and shrugs. "The actual results are only about 4% over budget, and most of that is in the ingredients. Everything looks pretty good to me" he says.

Is Jed's analysis correct?

Required:

As Jed's trusted business advisor, addressed to Jed with your analysis of the current performance. answer the following questions. Include a financial analysis (including the variance analysis in Requirement B and any other important calculations) as an attached file or at the end, with all your calculations.

1. Does the variance report reflect the actual performance of Janice Young and the central kitchen? Why or why not?
2. Prepare a more useful variance analysis, and include it with your financial analysis. Your analysis should include the total budget variance as well as its price/rate/spending and quantity/efficiency component. The following format might be helpful:

Account	Actual cost	Flexible budget	Total Budget Variance	Price/Rate Variance	Qty/Efficiency Variance
Dough	$315.00
Filling/spices	$1,050.00
Grouper fish	$5,460.00
Direct labor	$2,337.50
Variable OH	$1,893.00
Total	$11,055.50

1. , summarize your findings from the financial analysis prepared for Requirement B (i.e., what does your report suggest about the various aspects of Janice's performance in the centralized kitchen?).
2. analyze these findings. For example, are some variances more worrisome than others, what might have caused the variances, etc.