Focuses on using actual results from the company where 11,000 units are produced in quarter 1 and 16,000 in quarter two.

The company has revised the budget schedules from part 2 and use actual results for the first two quarters and have budgeted the information for quarters 3 and 4.

Appendices E1-E7 have the calculation of variances between the actual results and expected results for quarter 1 and 2.

There are two questions that go into part 3.

Question 1

Analyze the variances of Direct Materials, Direct Labor, Variable Overhead, and Fixed Overhead. Analyze the difference between the variances between quarter 1 and quarter 2.

Starting with Direct Materials variances:

Analyze the direct material price variance and direct material quantity variance for the three most expensive parts that go into the Shark Scout: the engine block, seat assembly, and diving bell suit. It is important to note that Water Play does not manufacture these parts, but purchases them from elsewhere and installs them in the shark scouts. The parts are direct materials. The Shark Scouts are the units.

Analyze the variances of price and quantity for all three parts and give reason why this variance might have occurred. Determine if the variances change from quarter 1 to quarter 2 and why. In the case of Price Variance, the company redesigned these three parts after receiving customer feedback and this resulted in the standard rate (SR in the appendices) to change for each direct material before Q1 could begin. The changes in materials after redesign can be found in appendix D-1

Direct Materials Price Variance Analysis:

I've gone ahead and done the analysis for the direct materials price variance for an example. I've made the table below per her instructions in the lecture video regarding part 3. ( For the tables, we want to examine the percentage of change because the dollar amount in variances will not show the information we want, because each quarter produced a different amount in units, and the dollar amount would show costs in proportion to the unit amount. The percentages have already been calculated for us.)

Direct Material Price Variances

Quarter 1

Quarter 2

Seat Assembly

7.0% F

7.0% F

Engine Block

4.0% U

4.0% U

Diving Bell Suit

2.0% F

2.0% F

Table x See appendix E-1, E-2, and E-3

As mentioned earlier, I need to analyze the direct materials price variances and the difference between the variances between quarter 1 and quarter 2. (I use appendix D-1 to find the purchase price and standard price.)

To describe this table, I would say:

The three most expensive parts that go into the assembly of each unit were redesigned after the constant budget was established. This resulted in the purchase price changing for the seat assembly, the engine block, and the diving bell suit. The redesign of the seat assembly resulted in the purchase price per assembly changing to $651 as opposed to the standard price, which was $700. This caused a favorable direct materials price variance of 7%. The engine block however, had a purchase price of $1,248 and a standard price of $1,200, which led to a 4% unfavorable price variance. The diving bell suit also had an increase with a purchase price of $1,275 and a standard price of $1,250, causing an unfavorable price variance of 2%. The direct materials price variance is the same for each quarter because the actual rate did not change between quarters.

• Direct Labor Variance - Appendix E4 -
• Direct Labor Rate Variance - difference paid to workers between the actual labor rate and the standard labor rate. The actual rate is lower because they are new employees at a new company, and as they gain experience, their rate will go up. Will result in a favorable variance. Analyze the difference between the variances between quarter 1 and quarter 2.
• Direct Labor Efficiency Variance - difference of labor hours it took to produce the output and the hours it should have taken to produce the output. It took more actual hours to produce the output because the employees are new and will get better over time. In Q2, you will notice the variance is smaller, because they are more efficient. Analyze the difference between the variances between quarter 1 and quarter 2.