Frogs #6

Performing Variance Analysis

Goal:

To perform basic variance analysis to help determine the cause(s) for missing budget targets.

Information:

Frogs, Inc. decided to add the new commercial projects this year. You have prepared a CM Income Statement at the end of the first year of providing the service. After showing your results to the Owners, they are concerned that Frogs, Inc. decision to provide the commercial projects was the wrong decision. They have asked you to perform a basic variance analysis to give them more information.

Here is the information you have gathered:

	Budgeted	Actual
Sales Information
# of projects sold	100	85
Sales Price/Project (average)	$36,750	$39,500
DL Information
Hours per project
Owners	40	45
Designers	120	130
Sr. Engineers	80	75
Jr. Engineers	240	260
Concrete Casters	40	30
Wages/hour
Owners	$50	$55
Designers	$40	$40
Sr. Engineers	$30	$35
Jr, Engineers	$25	$23
Concrete Casters	$20	$20
Variable MOH Information
Driver Usage per Project
Owners	1	1
Designers	1	1
Engineering	320	335
Concrete Casting	20	20
POHR for each department
Owners	$35	$50*
Designers	$120	$120
Engineering	$6.71	$6.25
Concrete Casters	$9.30	$15.00

*Actual Variable OH rates have been included in the chart for ease of computations.

Fixed costs actual expenditures were as follows: warehouse rent $125,000, Insurance $45,000, Equipment depreciation $250,000, department supervisor $60,000, and direct advertising $20,000.

One last note: The economy has remained steady and growth is actually increasing in the area as many new businesses are expanding.

Assignment:

1 What is the fundamental underlying issue (or issues) for this problem? Explain.

2 - What are the Labor Rate and Efficiency variances for the commercial projects? You will need to compute the variance for each level of employee independently and report the total variances for all employees. The more information here, the better analysis you will have.

3 What are the Variable Manufacturing Overhead Spending and Efficiency variances for the commercial projects? You will need to examine each department separately and report the total variance for each department.

4 What are the Sales Price and Sales Volume Variances for the commercial projects?

6 What is the DM price variance and quantity variance? There is not enough information to break this down into each material so just provide the total variance.

5 Based on your answers to the previous questions, how could Frogs, Inc. improve the production process of the commercial projects? Explain.

Hint: The best way to compute these variances quickly is to create a template in Excel and compute each variance. Doing the calculations by hand will take much longer. I do not need to have your spreadsheet for this assignment, only your typed answers in a document.

Frons, In Static Budget Flexible Budet For Year Ending 2013 Contribution Margin Income Statement Total units to be sold: Total Urits to be scld: Total Units to be sod: ,123,750 Dadgn Cepartment Design Dapartmant 1Enginsaring 16 ocrete Casters Concrete Casters Deslan Dapartmant Dergn Department Concrete Casters 28 Contrution Marci Contrution Margin Equipment Deprecistion Cirect Advertising Frons, In Static Budget Flexible Budet For Year Ending 2013 Contribution Margin Income Statement Total units to be sold: Total Urits to be scld: Total Units to be sod: ,123,750 Dadgn Cepartment Design Dapartmant 1Enginsaring 16 ocrete Casters Concrete Casters Deslan Dapartmant Dergn Department Concrete Casters 28 Contrution Marci Contrution Margin Equipment Deprecistion Cirect Advertising