Question
Grump Industries makes plastic containers in several different styles and sizes. The containers are brightly coloured and some have lids. The products are sold at
Grump Industries makes plastic containers in several different styles and sizes. The containers are brightly coloured and some have lids. The products are sold at the Dollar Store, Canadian Tire, Walmart and other similar outlets. The firm uses a standard costing system. Information below pertains to its best selling product, a 20- gallon garbage pail, for the month of November. The only important direct material is plastic resin. Grump purchases the resin in large amounts in order to take advantage of any available quantity discounts. Only the most economical grade of resin is purchased and all purchases are paid for quickly in order to secure cash discounts. Grump has a policy of paying for shipping in order to be able to control the cost of shipping and as a means of securing lower prices. For the 20-gallon garbage pail, the standard quantity is based on product specifications. The process has been carefully designed to prevent any wasting of materials. Because the process is mostly automated, quality control failures of only 1% are expected. The direct labour rate standard is based on the wage structure of the firm. The firm pays the market rate and provides the minimum required level of benefits. Overtime is strictly limited. The direct labour efficiency variance is based on time and motion studies. All employees are carefully trained and supervised. Breaks are allowed as required by law. Good performance, including a productivity rate of 99%, is expected at all times. For the month of November, the following variances were reported: DMPV Standard: $934,500 Actual: 1,033,298 Variance $98,798 DLRV Standard: $32,000 Actual: 32,540 Variance $540 DMQV Standard: 2,456,000 Actual: 2,407,145 48,855 (pounds) or $61,068 Variance DLEV Standard 1,700 Actual Variance 1,610 90 (hours) or $1,895 Analyse the variances as a group. It will not be helpful to provide laundry lists of any possible events that could have caused each variance. Look for some event that caused important changes and think about the relationships among the variances. Make a clear recommendation to management about how to respond to the variances. This recommendation should flow directly out of your analysis. Write clearly and concisely. (Note: I did not forget to label the variances. You can do that if you believe it will help.)
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