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Budgeting and Variance Analysis Using Only a Single Unit-Level Driver Lawrige Dental Products prochoces tho different dental intifumerits in its Se. Loat flant orown crimping pliers and curved crown scisors. Arry Bunker, production manager, was upvel with the lateit perfomance report which indicated that she was 31 to,000 over the manufacturing budget. Civen the efforts that she and her woeken had made, she wat corlident that thery by the reults. Ol the lour majse manulacturing inputi in the manulacturing cost budgrt (direct materiab, deect labor, power, and setupu), only the direct materah input was not oyer budget. The actual costs for these four inputs folluev: Amy knew that her operation had produced moee than originally had been planned sa that mare pomer and labor had natirally been uled. She ahe knew that the ancerlairty it scheduliry had led to more vetups than plarned. When she pointed this eut to tecter Comed, the plant controtie, he ansured her that the bradgeted costs had been adjunted for the increase in production activity. Curious, Amy asked about the methods to make the adjuntmere. Hecten if the actual level of production activity ifen trom the original planned level, we perdict cont for different kewts of acthity. eactly besw you adiutred the corts of dinect materiali, diret labot, power, and artupt. of leat aquares. We assume that cost vorutons can be esplained by watiation in preduction activity whese activity is meaured thy dinct lation hours. Here is a list of the cod formales (Tiesitile budget formulai) for the four ermi you mentianed. The warible x is the number of dieect labor houes. Second, we predict what the coib shosld tuve been lior the actual level of pruductuph actiey Ise each tem by uing the actual deect labor hourt. in your cane, the actull devet labor hour ined were 20,000 dinect labse hours. Required: 1. Using the actual 20,000 drect laboe boun, calculats what the conts should have been for each of the tour mansactaring cost inosti. What are the total atte- the-lact budgeted matulactaring cetts? 2. Prepate a performance teport using the flesible budget outcome in Arquirmert 1, Does. the report confirm that Arwy in overbudget by the amouet inituly dimedi 1. Suppose that lector inticated that the standard wage cate is 915 but that becase of overtime if actually meraged 316 tor the period being convidered. Beclor alio indecated that the dieect labor hours allewed for the actuil osipve were 20,500 hovet. a. Calculate the lubot rate and efficiency variances. b. Ceplain the mort likedy raywid of these twe varuncm. 4. Ester to tahibit 2.2. a. Which deta analytic bpe or types best dracribe the calculstion in Regueement it equirementa? Budgeting, Variance Analysis, and Product Costing: Multiple Drivers Considered Aher conidering the explanations and analyen offered by Hector, the interaction tetweten the twe cortimsed as followa 4. Calculate the labor tate and efficiency variancm. b. Explain the mest thely cause(s) of theie bwo variances 4. Feler to Eshasit 22 3. Which data analytic type or types bect describe the calculation in 2equarement it requirement? Budgeting, Variance Analysis, and Product Costing: Multiple Drivers Considered tave continued as followi. They bave more to do with machine houn. Ad production increasect mathine houn increme more rapidly than direct laboc houn. Nso. Hecter: Vou know, you have a point. The coeffcent of detettination for powet cont a only abost sions That lenes a tot of unexplaned cont wariation. The coethicent for the labor and esch cose. Setup coss, of course, are fient. Power cort 34.000+05, whan % o Machere hown mport' teplint. 4ach jexdut ine. a te the mon wcinule? baplar. Budgeting and Variance Analysis Using Only a Single Unit-Level Driver Lawson Dental Products produces two different dental instruments in its St. Louis plant crown crimping pliers and curved crown scissors. Amy Bunker, production manager, was upset with the latest performance report which indicated that the was 5110,000 over the manulacturing budget. Given the efforts that she and her workers had made, she was confident that they had met or beat the budget. Not only was she upset, but she was also genuinely puzzled by the results. Of the four major manufacturing inputs in the manulacturing cost budget (direct materials, direct labos, power, and setups), only the direct materials input was not over budget. The actual costs for these four inputs follow; Amy knew that her operation had produced more than originally had been planned so that more power and labor had naturally been used. She also knew that the uncertainty in scheduling had led to more setups than planned. When she pointed this out to Hector Comez, the plant controllet, he assured her that the budgeted costs had been adjusted for the increase in production activity. Curious, Amy asked about the methods to make the adjustment. Hector: If the actual level of production activity dities from the original planned level, we adjust the budget uning what are called flexible budget formulas-formulas that allow is to predict cost for different levels of activity. Amy: The approach seems reasonable. However, tm sure something is wrong here. Tell me exactly how you adjusted the costs of direct materials, direct laboc, power, and setups. Hector: First, we obtain formulas for the individual items in the budget by using the method of least squares. We assume that cost variations can be esplained by varations in production activity where activity is measured by direct bbor houn. Here is a list of the cost formulas (fiesuble budget formulas) for the four items you mentioned. The variable x a the number of direct labor hours. Second, we predict what the costs should hwe been for the actual level of peoduction activity for each item by using the actual direct bbor houn. th your case, the actual direct labor houns used were 20,000 direct labor hour. Required: 1. Using the actual 20,000 direct labor houn, calculate what the costs should have been for each of the four manufacturing cost inputs. What are the total atter-the-fact budgeted manufacturing costs? 2. Prepare a performance report using the flexble budget outcomes in Requirement 1. Does the report confirm that Arty is overbudget by the amount initially claimed? 3. Suppose that Hector indicated that the standard wage rate is $15 but that because of overtime it actually aveeaged $16 for the period being considered. Hector abo indicated that the direct labor hours allowed for the actual output were 20,500 hours. a. Calculate the labor rate and etficiency variances. b. Explain the most bkefy cause(1) of these two variances. 4. Reler to Exhibs 2.2. a. Which data analytic type or types best describe the calculation in Requirement 17 b. Consider Requirements 3a and 36 . Which data analytic type(s) best deicribe these two fequirements? Budgeting, Variance Analysis, and Product Costing: Multiple Drivers Considered After considering the explanations and analyses offered by Hector, the interaction between the two continued as follows. Amyit I think I see the problem. Power costs don't have a lot to do with direct labor hours. They have mote to do with machine hours. As production increases, machine hours increase more rapidly than direct tabor houns. Alvo. Hector. You know, you have a point. The cocticient of determination for power cost is only about 5096 . That leaves a lot of unexplained cost variation. The coetticient for the labor and materials equations, however, is much better. It explains about 96% of the cost variation in each case. Setup costs, of course, are foued. Amy: Well, vetup costs also heve very little to do weth direct laber hours, And ther we certairly not foced-at leas not all of then. We had to do more setupe than cour original plan called for becase of the wechediling changet. Ard we mut pay our people when they work estra houn. if seems like we are alwwi paying evertime, I wonder if we wimply do not have encugh peopit Ier the setup activity. Als, there ate woplies that ane wed ler each vetup and thry are not theap. Did you build theie entra corts of increaied weyp activity irte your sucthet? formulan based on betier explanatory warlablet. Fo grt back with you in a fer doys. Atier a tew dap' won, Henter develaped the following flestit thudget formulas, all with a coeflicient of detemination greater than sols Dinet labor cerle =$15x, where x+ Dinct labor hosen Ponver coit =369,000+0.94, whete Y - Machine hour Setup cont =$98.000+$4002, where 2 - teverther of setupn The actual mearures lye each of the actiofy ditiven an as follown. 5. Using the newly developed foresing, calcylote what the coses thould hove been for the actual measules of activity for each of the four mandacturing activities. Whar are the total afler the fact budgeted manutacturing coit? Hiow does tha crmpare with the tocal expected costs calculated in kequerement 1? the report validate the conceens eapeened by Arty abost the traditional performance report?' Loplain. 7. Asume that the tollowing activity anuge is provided for each of the twe producti: 4. Uhing the tetal budgreted costs cakculated in Requirnmene. 5, caiculate a manulactuting coct rate per diect labor hose and sae thin taee sa atign bue marnlacturing cents to each product fine. b. Uhing the butbgried coits for eash mavify calculated in Requrement 5, calculate an activey rate fer each of the four activises and sae these rates to asign mandacturing cosas to each preduet line. Rourd each rate calcalation to the ne west doll at except for pones mate, found it to the nearest cent c. Cempure the product line cost awigments malt in 9a and 9 . Whach dep you comider to be the more accurate? Eoplain. 2. Disuss the role of dota aralytict in the interaction between Amp and Hector: Budgeting and Variance Analysis Using Only a Single Unit-Level Driver Lawrige Dental Products prochoces tho different dental intifumerits in its Se. Loat flant orown crimping pliers and curved crown scisors. Arry Bunker, production manager, was upvel with the lateit perfomance report which indicated that she was 31 to,000 over the manufacturing budget. Civen the efforts that she and her woeken had made, she wat corlident that thery by the reults. Ol the lour majse manulacturing inputi in the manulacturing cost budgrt (direct materiab, deect labor, power, and setupu), only the direct materah input was not oyer budget. The actual costs for these four inputs folluev: Amy knew that her operation had produced moee than originally had been planned sa that mare pomer and labor had natirally been uled. She ahe knew that the ancerlairty it scheduliry had led to more vetups than plarned. When she pointed this eut to tecter Comed, the plant controtie, he ansured her that the bradgeted costs had been adjunted for the increase in production activity. Curious, Amy asked about the methods to make the adjuntmere. Hecten if the actual level of production activity ifen trom the original planned level, we perdict cont for different kewts of acthity. eactly besw you adiutred the corts of dinect materiali, diret labot, power, and artupt. of leat aquares. We assume that cost vorutons can be esplained by watiation in preduction activity whese activity is meaured thy dinct lation hours. Here is a list of the cod formales (Tiesitile budget formulai) for the four ermi you mentianed. The warible x is the number of dieect labor houes. Second, we predict what the coib shosld tuve been lior the actual level of pruductuph actiey Ise each tem by uing the actual deect labor hourt. in your cane, the actull devet labor hour ined were 20,000 dinect labse hours. Required: 1. Using the actual 20,000 drect laboe boun, calculats what the conts should have been for each of the tour mansactaring cost inosti. What are the total atte- the-lact budgeted matulactaring cetts? 2. Prepate a performance teport using the flesible budget outcome in Arquirmert 1, Does. the report confirm that Arwy in overbudget by the amouet inituly dimedi 1. Suppose that lector inticated that the standard wage cate is 915 but that becase of overtime if actually meraged 316 tor the period being convidered. Beclor alio indecated that the dieect labor hours allewed for the actuil osipve were 20,500 hovet. a. Calculate the lubot rate and efficiency variances. b. Ceplain the mort likedy raywid of these twe varuncm. 4. Ester to tahibit 2.2. a. Which deta analytic bpe or types best dracribe the calculstion in Regueement it equirementa? Budgeting, Variance Analysis, and Product Costing: Multiple Drivers Considered Aher conidering the explanations and analyen offered by Hector, the interaction tetweten the twe cortimsed as followa 4. Calculate the labor tate and efficiency variancm. b. Explain the mest thely cause(s) of theie bwo variances 4. Feler to Eshasit 22 3. Which data analytic type or types bect describe the calculation in 2equarement it requirement? Budgeting, Variance Analysis, and Product Costing: Multiple Drivers Considered tave continued as followi. They bave more to do with machine houn. Ad production increasect mathine houn increme more rapidly than direct laboc houn. Nso. Hecter: Vou know, you have a point. The coeffcent of detettination for powet cont a only abost sions That lenes a tot of unexplaned cont wariation. The coethicent for the labor and esch cose. Setup coss, of course, are fient. Power cort 34.000+05, whan % o Machere hown mport' teplint. 4ach jexdut ine. a te the mon wcinule? baplar. Budgeting and Variance Analysis Using Only a Single Unit-Level Driver Lawson Dental Products produces two different dental instruments in its St. Louis plant crown crimping pliers and curved crown scissors. Amy Bunker, production manager, was upset with the latest performance report which indicated that the was 5110,000 over the manulacturing budget. Given the efforts that she and her workers had made, she was confident that they had met or beat the budget. Not only was she upset, but she was also genuinely puzzled by the results. Of the four major manufacturing inputs in the manulacturing cost budget (direct materials, direct labos, power, and setups), only the direct materials input was not over budget. The actual costs for these four inputs follow; Amy knew that her operation had produced more than originally had been planned so that more power and labor had naturally been used. She also knew that the uncertainty in scheduling had led to more setups than planned. When she pointed this out to Hector Comez, the plant controllet, he assured her that the budgeted costs had been adjusted for the increase in production activity. Curious, Amy asked about the methods to make the adjustment. Hector: If the actual level of production activity dities from the original planned level, we adjust the budget uning what are called flexible budget formulas-formulas that allow is to predict cost for different levels of activity. Amy: The approach seems reasonable. However, tm sure something is wrong here. Tell me exactly how you adjusted the costs of direct materials, direct laboc, power, and setups. Hector: First, we obtain formulas for the individual items in the budget by using the method of least squares. We assume that cost variations can be esplained by varations in production activity where activity is measured by direct bbor houn. Here is a list of the cost formulas (fiesuble budget formulas) for the four items you mentioned. The variable x a the number of direct labor hours. Second, we predict what the costs should hwe been for the actual level of peoduction activity for each item by using the actual direct bbor houn. th your case, the actual direct labor houns used were 20,000 direct labor hour. Required: 1. Using the actual 20,000 direct labor houn, calculate what the costs should have been for each of the four manufacturing cost inputs. What are the total atter-the-fact budgeted manufacturing costs? 2. Prepare a performance report using the flexble budget outcomes in Requirement 1. Does the report confirm that Arty is overbudget by the amount initially claimed? 3. Suppose that Hector indicated that the standard wage rate is $15 but that because of overtime it actually aveeaged $16 for the period being considered. Hector abo indicated that the direct labor hours allowed for the actual output were 20,500 hours. a. Calculate the labor rate and etficiency variances. b. Explain the most bkefy cause(1) of these two variances. 4. Reler to Exhibs 2.2. a. Which data analytic type or types best describe the calculation in Requirement 17 b. Consider Requirements 3a and 36 . Which data analytic type(s) best deicribe these two fequirements? Budgeting, Variance Analysis, and Product Costing: Multiple Drivers Considered After considering the explanations and analyses offered by Hector, the interaction between the two continued as follows. Amyit I think I see the problem. Power costs don't have a lot to do with direct labor hours. They have mote to do with machine hours. As production increases, machine hours increase more rapidly than direct tabor houns. Alvo. Hector. You know, you have a point. The cocticient of determination for power cost is only about 5096 . That leaves a lot of unexplained cost variation. The coetticient for the labor and materials equations, however, is much better. It explains about 96% of the cost variation in each case. Setup costs, of course, are foued. Amy: Well, vetup costs also heve very little to do weth direct laber hours, And ther we certairly not foced-at leas not all of then. We had to do more setupe than cour original plan called for becase of the wechediling changet. Ard we mut pay our people when they work estra houn. if seems like we are alwwi paying evertime, I wonder if we wimply do not have encugh peopit Ier the setup activity. Als, there ate woplies that ane wed ler each vetup and thry are not theap. Did you build theie entra corts of increaied weyp activity irte your sucthet? formulan based on betier explanatory warlablet. Fo grt back with you in a fer doys. Atier a tew dap' won, Henter develaped the following flestit thudget formulas, all with a coeflicient of detemination greater than sols Dinet labor cerle =$15x, where x+ Dinct labor hosen Ponver coit =369,000+0.94, whete Y - Machine hour Setup cont =$98.000+$4002, where 2 - teverther of setupn The actual mearures lye each of the actiofy ditiven an as follown. 5. Using the newly developed foresing, calcylote what the coses thould hove been for the actual measules of activity for each of the four mandacturing activities. Whar are the total afler the fact budgeted manutacturing coit? Hiow does tha crmpare with the tocal expected costs calculated in kequerement 1? the report validate the conceens eapeened by Arty abost the traditional performance report?' Loplain. 7. Asume that the tollowing activity anuge is provided for each of the twe producti: 4. Uhing the tetal budgreted costs cakculated in Requirnmene. 5, caiculate a manulactuting coct rate per diect labor hose and sae thin taee sa atign bue marnlacturing cents to each product fine. b. Uhing the butbgried coits for eash mavify calculated in Requrement 5, calculate an activey rate fer each of the four activises and sae these rates to asign mandacturing cosas to each preduet line. Rourd each rate calcalation to the ne west doll at except for pones mate, found it to the nearest cent c. Cempure the product line cost awigments malt in 9a and 9 . Whach dep you comider to be the more accurate? Eoplain. 2. Disuss the role of dota aralytict in the interaction between Amp and Hector