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Investigating Variances. Robotsy, Inc., produces robots sold at a variety of retail stores throughout the world. Standard cost information for each robot is presented as
Investigating Variances. Robotsy, Inc., produces robots sold at a variety of retail stores throughout the world. Standard cost information for each robot is presented as follows:
Direct materials | $60.00 |
Direct labor | 40.00 |
Variable overhead | 30.00 |
Total | $130.00 |
Robotsy produced and sold 100,000 robots for the year and encountered the following production variances:
Direct materials price variance | (300,000) | Favorable |
Direct materials quantity variance | 290,000 | Unfavorable |
Direct labor rate variance | (170,000) | Favorable |
Direct labor efficiency variance | (140,000) | Favorable |
Variable overhead spending variance | 150,000 | Unfavorable |
Variable overhead efficiency variance | (210,000) | Favorable |
Total variable production cost variance | (380,000) | Favorable |
Company policy is to investigate all unfavorable variances above 5 percent of the flexible budget amount for direct materials, direct labor, and variable overhead.
- Identify the variances that should be investigated according to company policy. Show calculations to support your answer.
- What recommendations would you make for the companys current policy?
- Identify the highest favorable variance and highest unfavorable variance and provide one possible cause of each variance.
- Victoria Posey, the manager at Robtsy, Inc., reviewed the companys variance analysis report. The materials price variance of $(300,000) was the most significant favorable variance for the month, and the materials quantity variance of $290,000 was the most significant unfavorable variance. Victoria would like to reward the companys purchasing agent for achieving such substantial savings by giving him a $2,000 bonus while not providing any bonus for the production manager.
- Do you agree with Victorias approach to awarding bonuses? Explain.
- What circumstances might lead to the conclusion that the purchasing agent should not receive a bonus?
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