Kemp Tables, Inc. (KTI) makes picnic tables of 2 * 4 planks of treated pine. It sells the tables to large retail discount stores such as Walmart. After reviewing the following data generated by KTI's chief accountant, the company president, Arlanne Darwin, expressed concern that the total manufacturing cost was more than $11 million above budget ($6,470,100 - $5,359,200 = $1,110,900), Cost of planks per table Cost of labor per table Total variable manufacturing cost per table (a) Total number of tables produced (b) Total variable manufacturing cost (a xb) Total fixed manufacturing cost Total manufacturing cost Actual Results 5 39.90 28.00 $ 67.98 79,000 $5,364,100 1, 106,000 $6,470, 180 Master Budget $ 30.40 25.20 $ 55.60 77,000 $4,281,200 1,078,000 $5,359,200 Ms. Darwin asked Conrad Pearson, KTI's chief accountant, to explain what caused the increase in cost. Mr. Pearson responded that things were not as bad as they seemed. He noted that part of the cost variance resulted from making and selling more tables than had been expected. Making more tables naturally causes the cost of materials making and selling more tables than had been expected. Making more tables naturally causes the cost of materials and labor to be higher. He explained that the flexible budget cost variance was less than $11 million. Specifically, he provided the following comparison Cost of planks per table Cost of labor per table Total variable manufacturing cost per table (a) Total number of tables produced (b) Total variable manufacturing cost (a*b) Total fixed manufacturing cost Total manufacturing cost Actual Results $ 39.90 28.00 $ 67.90 79,000 55,364,100 1,106,000 56,470, 100 Flexible Budget $ 38.40 25.20 $ 55.60 79,000 $4,392,400 1,078,000 $5,470, 400 Based on this information, he argued that the relevant variance for performance evaluation was only $999,700 ($6,470,100 - $5,470,400). Ms. Darwin responded, "Only $999700! I consider that a very significant number. By the end of the day, I want a full explanation as to what is causing our costs to increase." a-1. Based on the following information, determine the total materials cost variance and the price and usage variances. Assuming that the variances are an appropriate indicator of cause. Actual Standard Data Data Number of planks per table 19 Price per plank *$ 1.90 $ 1.60 Material cost per table $39.90 $30.40 21 a-2. Based on the following information, determine the total labor cost variance and the price and usage variances. Assuming that the variances are an appropriate indicator of cause. Actual Standard Data Number of hours per table Price per hour *$ 8.40 Labor cost per table 3.0 Data 2.8 * $10.00 $28.00 $25,20 a-3. Determine the amount of the fixed cost spending and volume variances
