1. First, gain an understanding of the three processes for yourself (frame, wheel, and final assembly). Summarize these processes and at the same time identify where within these processes variation could arise leading to variation in costs (this could be variation in a positive or negative way). Opine on the relative amount of variation. [The goal of this section is for you to develop an expectation in your mind, that if you do see variation in the analysis, you have an understanding of what may be causing the variation - almost as if you are hypothesizing ahead of time where there is greater likelihood for variation in the company's processes]. This should be done before you any variance analysis calculations.

2. Compute the following variances for Mile High Cycles. for sales. sales price variance > assume budgeted sales of 9,700 bicycles for total budgeted sales of $11,145,300 price volume variance > and actual sales of 11,000 bicycles for total actual sales of $10,989,000 for frame assembly: steel tubing price variance steel tubing efficiency variance steel tubing quantity variance paint price variance paint efficiency variance paint quantity variance labor price (a.ka. rate) variance labor efficiency variance labor quantity variance for wheel assembly: parts price variance parts efficiency variance parts quantity variance rework spending variance labor price (a.k.a. rate) variance labor efficiency variance labor quantity variance for final assembly parts price variance parts efficiency variance parts quantity variance rework spending variance labor price (a.k.a. rate) variance labor efficiency variance labor quantity variance for production fixed overhead. rent budget variance office staff budget variance depreciation budget variance other costs spending variance (ignore note on Exhibit 1 of case and assume all fixed, with the below budget & actual details): budget actual Supervision $525,000 $725,000 Maintenance, production machines $225,000 $125,000 Overhead production volume variance (Applied vs Budgeted Overhead)2004 Production Budget Expected Production (Bicycles) 10,000 Input (unit) Rate (unit) Cost Frame Assembly Steel Tubing Ibs 30.00 $/lb 3,300,000.00 Paint 1,250.00 gallons 20.00 $/gallon 25,000.00 Labor hrs 15.00 $/hr 1,500,000.00 Total Frame 4,825,000.00 Wheel Assembly Parts 10,000.00 kits 120.00 $/kit 1,200,000.00 Labor 5,000.00 hrs 13.00 $/hr 65,000.00 Total Wheel 1,265,000.00 Final Assembly Parts 10,000.00 kits 350.00 $/kit 3,500,000.00 Labor 7,500.00 hrs 14.00 $/hr 105,000.00 Total Final 3,605,000.00Final Assembly Parts 10,000.00 kits 350.00 S/kit 3,500,000.00 Labor 7,500.00 hrs 14.00 $/hr 105,000.00 Total Final 3,605,000.00 Overhead Rent 250,000.00 Office Staff 100,000.00 Depreciation 100,000.00 Other Costs (Supervision) 525,000.00 Other Costs (maintenance, prod machines) 225,000.00 Total OH 1,200,000.00 Total Annual Costs Sales 9,700.002004 Actual Production Costs Actual Production (Bicycles) 10,800 Input (unit) Rate (unit) Cost Frame Assembly Steel Tubing Ibs 31.50 $/lb 3,572,100.00 Paint 1,375.00 gallons 20.50 $/gallon 28,187.50 Labor hrs 15.25 $/hr 1,528,050.00 Total Frame 5,128,337.50 Wheel Assembly Parts 10,800.00 kits 122.00 $/kit 1,317,600.00 Rework parts 25,000.00 Labor 5,500.00 hrs 13.50 $/hr 74,250.00 Total Wheel 1,416,850.00 Final Assembly Parts 10,800.00 kits 367.00 $/kit 3,963,600.00 Rework Parts 45,000.00 Labor 8,000.00 hrs 14.50 $/hr 116,000.00 Total Final 4,124,600.00Overhead Rent 250,000.00 Office Staff 100,000.00 Depreciation 100,000.00 Other Costs (Supervision) 725,000.00 Other Costs (maintenance, prod machines) 125,000.00 Total OH 1,300,000.00 Total Annual Costs Sales 11,000.00 #