PAGE 139 PROBLEM-SOLVING PROCESS | Calculate direct materials and direct labor variances Ask yourself "what are we making?" The answer will determine what label your volume amounts will have. 2. Ask yourself "what do we need to make it?" The answer will determine what label your quantity amounts will have. 3. Label everything in the problem with AP, AQ, AV, SP, SQ, BV. Cross out irrelevant information. 4. Fill in the pitchfork to determine the amount of each variance asked for. 5 . Write the formula for the price, quantity and sales volume variances. 6. Think of a couple of reasons why that variance might exist. Make sure your reason makes sense when you think about the variance pitchfork as a whole. For example, if you say that we paid the workers more because they were skilled, then they should also be efficient. If your efficiency variances is unfavorable, that reason might not make much sense! PRACTICE | Variance Analysis with Gus' Fried Chicken Gus' Fried Chicken manufactures bags of frozen French fries used at its franchised restaurants. Last week, Gus purchased and used 19,400 pounds of potatoes at a price of $0.80 per pound to produce 48,500 bags of frozen French fries. Gus' master budget was based on 47,000 bags. Each bag called for half a pound of potatoes. Each pound was projected to cost $0.90. Help Gus start to analyze its potato costs by identifying each of the terms below. Label your answers (for example $1.23 / hour). Standard Price (SP) Actual Price (AP) Standard Quantity (SQ) Actual Quantity (AQ) Standard Cost (SC) Actual Cost per bag Budgeted Volume (BV) Actual Volume (AV) FS: After reading the problem, but before doing any calculations, do you expect Gus's direct material quantity variance to be favorable or unfavorable? Why? Direct Material Price Variance = Direct Material Quantity Direct Material Sales Volume Variance = Variance = Direct Material Flexible Budget Variance = Direct Material Static Budget Variance = FS: Is the answer you calculated close to what you expected? YES NO If not, why not? ACCT 201 | MANAGERIAL ACCOUNTING I CHAPTER 6 | PAGE 5