Please note: instructions below replace the REQUIRED provided in the case

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10.2 Clear Water Containers Ltd. Contributed by Glen Stanger Instructor, Douglas College, New Westminster James Virani, the president of Clear Water Containers, started contemplating the first budget variance report he had just received (Exhibit 1). It seemed to present him with more questions than answers. He knew that production had exceeded expectations for the month and he had expected production costs to be higher. However, he couldn't tell what had caused the variances from budget, especially since some of the costs were actually lower than budgeted. A couple of minutes later, he called the company's new controller, Patti Lee. Patti saw the call display on her phone and got nervous right away. She had thought it might not be a good idea to send such a high-level variance report without investigating the variances further, and wondered if that was why Mr. Virani was calling. Two minutes later, she had her answer: the president scheduled a meeting with her for the next day and she was to bring information that provided more details about the variances and who was responsible. Creating the variance report was Patti's first innovation since starting with Clear Water Containers two months ago. She was excited to join this new and growing Calgary-based manufacturing company, which makes plastic containers for the consumer water filtration industry. The company found a competitive advantage by producing a high-quality product that can be quickly made in designs specified by the water filtration companies. Patti gathered the information in several exhibits to use as the source for her work. Exhibits 2 and 3 show unit standard and actual costs, respectively. Exhibit 4 shows overhead costs; note that fixed overhead is allocated based on direct labour hours. She also grabbed the company's organization chart, shown in Exhibit 5. Required Assume the role of Patti and do the following to prepare for your meeting with the president. (a) Create a new report, similar to Exhibit 1 but with the following column headings: Actual Results, Flexible Budget Variances, Flexible Budget, Sales Volume Variances, and Static Budget. (b) Prepare a flexible-budget variance analysis for direct materials, direct labour, variable manufacturing overhead, and fixed manufacturing overhead. In your analysis, break each flexible budget variance for these costs into two components. For example, fixed manufacturing overhead will be presented in two parts: budget variance and production-volume variance. (c) Identify the likely manager responsible for each account and prepare a static budget variance report organized by responsibility. Remember that for overhead there are often multiple managers involved because overhead includes so many different costs. Canadian Managerial Accounting Cases EXHIBIT 1 - STATIC BUDGET VARIANCE REPORT EXHIBIT 2 - UNIT STANDARD COSTS Chapter 10: Variances EXHIBIT 5 - CLEAR WATER CONTAINERS ORGANIZATION CHART 3. Quantitative Analysis (presented as separate exhibits to the written memo): I. Create a Flexible Budget Report (similar to Exhibit 1 but with the following column headings: Actual Results, Flexible Budget Variances, Flexible Budget, Sales Volume Variances, and Static Budget*. II. Prepare a flexible-budget variance analysis for direct materials, direct labour, variable manufacturing overhead , and fixed manufacturing overhead. In your analysis, break each flexible budget variance into its two components (ie. direct materials price variance, direct materials usage variance), and clearly label each variance as favourable (F) or unfavourable (U). There should be eight variances in total analyzed. 4. Qualitative Analysis (in the written body of your memo) - For each of the eight variances, identify: i. The relative level of concern (very low, low, median, high, very high) ii. The likely manager, or managers, responsible (be specific, refer to the organization chart in Exhibit 5 of the case) iii. Possible root causes for the variance - as many as possible 5. Conclusion - Using the concept of 'management by exception', which area(s) of the business do you recommend Mr. Virani focus on first in order to improve the overall financial performance? Your recommendation should specifically refer to the variance analysis completed. *Note: The term 'Static Budget' is the same as the term 'Master Budget' used in this course ** Important: For variable manufacturing costs, the case does not indicate the activity basis used for allocation. Assume the company uses machine hours as the basis for allocating variable manufacturing costs. Therefore, in exhibits 2 and 3 , assume the Quantity refers to 'machine hours per unit of output' and Price refers to 'dollars per machine hour'. Report Format The format of your professional memo should be as follows: 1. Proper memo header 2. Brief introduction paragraph 3. Explanation of 'Flexible Budget Variance Analysis' (one paragraph) 4. Qualitative analysis - create a table using the format similar to: 5. Conclusion (one paragraph) 6. Quantitative Analysis (separate Exhibits to the written memo) I. Flexible Budget Report (one page) II. Flexible Budget Variance Analysis Report (no limit on pages) The quantitative analysis should be completed using Excel, and the copied into your memo document as Exhibits. Students are required to submit their Excel file to support the information provided in the Exhibits. The written memo (not including Exhibits) is not to exceed three pages. Students will be rewarded for conciseness and clarity