Operational information Part 3 Variance At the beginning of the year, the Calgary Region expanded its product line to include a business suitcase on wheels with a laptop compartment This product line may be expanded into other regions if the profitability supports such expansion Your analysis will assist in decision making not just for the existing Calgary region operations but also for potential expansion into other regions Based on research conducted, regional managers established the following standards for each suitcase Standard Quantity or Hours Standard Price of Rate Standard Cost Direct materials 1 20 kilograms $5 00 per kilogram $6 00 Direct labour 80 hours $4 00 per hour 3 20 Variable manufacturing overhead 0 30 machine hours $3 00 per machine hour 90 Total standard cost $10 10 Management made the commitment to prepare a flexible budget and conduct variance analysis to support decision making for future production and product line decisions The December income statement presented represent the flexible budget at 14,800 suitcases Additional information respecting this product line Normal volume is 14,950 suitcases per year fixed costs are allocated using machine hours Flexible Budget Actual Sales (14,800 suitcases) $444,000 $444,000 Less Variable expenses Variable cost of goods sold 149,480 156,270 Variable selling expenses 19,700 19,700 Total variable expenses 169,180 175,970 Contribution Margin 274,820 268,030 Less Fixed expenses Manufacturing overhead 128,000 128,000 Selling and administration 82,880 82,880 Total fixed expenses 210,880 210,880 Net income $63,940 $57,150 Contains direct materials, direct labour, and variable manufacturing overhead The managers have provided you the following additional information respecting operations and costs for the year 30,100 kilograms of materials were purchased at a cost of $3 70 per kilogram 24,200 kilograms of materials were used in production (finished goods and work in process inventories are insignificant and do not need to be examined) 11,800 direct labour hours were worked at a cost of $5 per hour Variable manufacturing overhead cost totalling $15,400 for the month was incurred A total of 4,400 machine hours was recorded All variances are closed to cost of goods sold at the end of the fiscal period Requirement 3 (15 marks) Compute the following variances (be sure to clearly label the name of each variance presented) a Direct materials variances Direct labour variances Variable overhead variances Fixed overhead variances Provide an explanation to managers of potential causes of the variance results (both positive and negative variances) for two of the variances from a, b, c or d above (including each specific variance for each) Include in your explanation any variances that have relationships with each other (2 marks)

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Operational information Part 3 - Variance At the beginning of the year, the Calgary Region expanded its product line to include a business suitcase on

Operational information Part 3 - Variance

At the beginning of the year, the Calgary Region expanded its product line to include a business suitcase on wheels with a laptop compartment. This product line may be expanded into other regions if the profitability supports such expansion. Your analysis will assist in decision making not just for the existing Calgary region operations but also for potential expansion into other regions. Based on research conducted, regional managers established the following standards for each suitcase.

	Standard Quantity or Hours	Standard Price of Rate	Standard Cost
Direct materials	1.20 kilograms	$5.00 per kilogram	$6.00
Direct labour	.80 hours	$4.00 per hour	3.20
Variable manufacturing overhead	0.30 machine-hours	$3.00 per machine hour	.90
Total standard cost			$10.10

Management made the commitment to prepare a flexible budget and conduct variance analysis to support decision making for future production and product line decisions. The December income statement presented represent the flexible budget at 14,800 suitcases. Additional information respecting this product line: Normal volume is 14,950 suitcases per year; fixed costs are allocated using machine-hours.

	Flexible Budget	Actual
Sales (14,800 suitcases)	$444,000	$444,000
Less: Variable expenses:
Variable cost of goods sold*	149,480	156,270
Variable selling expenses	19,700	19,700
Total variable expenses	169,180	175,970
Contribution Margin	274,820	268,030
Less: Fixed expenses
Manufacturing overhead	128,000	128,000
Selling and administration	82,880	82,880
Total fixed expenses	210,880	210,880
Net income	$63,940	$57,150

*Contains direct materials, direct labour, and variable manufacturing overhead.

The managers have provided you the following additional information respecting operations and costs for the year:

30,100 kilograms of materials were purchased at a cost of $3.70 per kilogram.
24,200 kilograms of materials were used in production (finished goods and work-in-process inventories are insignificant and do not need to be examined).
11,800 direct labour-hours were worked at a cost of $5 per hour.
Variable manufacturing overhead cost totalling $15,400 for the month was incurred. A total of 4,400 machine-hours was recorded.
All variances are closed to cost-of-goods sold at the end of the fiscal period.

Requirement #3 (15 marks)

Compute the following variances (be sure to clearly label the name of each variance presented): a. Direct materials variances
1. Direct labour variances
2. Variable overhead variances
3. Fixed overhead variances.
Provide an explanation to managers of potential causes of the variance results (both positive and negative variances) for two of the variances from a, b, c or d above (including each specific variance for each). Include in your explanation any variances that have relationships with each other. (2 marks)