Case Study:

Papaya Partners is a distributor of papayas. They purchase papayas from individual growers and package them in 10-pound cartons for delivery to their various customers, generally supermarkets. Last month, they budgeted to sell $500,000 worth of cartons at a price of $25 each. Actual sales met a budget of $500,000 at $25 per carton.

Management has received cost information based on actual performance and needs to understand the drivers of the overall variance from the budget. They have asked you, as an analyst in their management accounting department, to calculate and explain the variances. The following data has been provided:

Budget Cost of fruit @ 10 pounds per carton $200,000 Cost of packaging @ 1 pound per carton $10,000 Labor costs @ .5 hourse per carton $90,000 Total Cost $300,000 Actual Cost of fruit @ 10 pounds per carton $244,200 Cost of packaging @ .55 pound per carton $11,000 Labor costs @ .75 hourse per carton $150,000 Total Cost $405,200 Unfavorable variance $105,200.00

Specifically, management needs to know the:

• Standard cost per unit (carton)
• Actual cost per unit
• Direct materials price variances
• Direct materials usage variances
• Direct labor rate variance
• Direct labor efficiency variance

In addition, they would like to understand how the variances are calculated and what caused them. They would also like a recommendation on what might be done to improve the variances.

For this assignment, compute all required amounts and explain how the computations were performed. Describe whom you would work with to determine the causes of the variances and hypothesize on what caused the variances. Based on your analysis, recommend actions that management could take to improve the variances.

Superior papers will:

• Perform all calculations correctly.
• Articulate how the calculations were performed.
• Assess the variances computed and evaluate the operational results (i.e., is performance better or worse than budgeted?).
• Explain with whom you would work to identify the root causes of the variances.
• Propose well-thought-out causes for each variance.
• Conclude on which variances require management's attention and recommend courses of action.