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Question 1-Variance analysis (40 points) SPRINT is clothing company that sells different types of sports clothing. To produce clothing, SPRINT needs to buy materials. In
Question 1-Variance analysis (40 points) SPRINT is clothing company that sells different types of sports clothing. To produce clothing, SPRINT needs to buy materials. In addition to material costs, SPRINT must put in labor hours. Finally, there are fixed overhead costs-i.e., the rent for their buildings, for which SPRINT signs a one-year contract at the beginning of each year. For 2020, SPRINT expected the rent to amount to $750,000. Regarding materials, past data indicates that: (1) materials (e.g., polyester) cost on average $2 per kilogram (i.e., 1,000 gram); and (2) labor costs equal on average $15 per hour. The amount of polyester and number of labor hours required to produce sports clothing depend on the type of clothing. Therefore, the selling price likewise differs for each type of sports clothing. The table below displays the expected numbers per type of sports clothing: At the end of 2020 , it turns out that the actual numbers for SPRINT are as follows: Furthermore, it turns out that the materials costs per kilogram, labor costs per hour and fixed costs were indeed correctly budgeted and, thus, are $2,$15 and $750,000, respectively. Calculate and interpret the following variances. In addition, for each variance, provide a potential economic explanation for its result: a. Sales price contribution variance b. Sales mix contribution variance c. Sales quantity contribution variance d. Fixed costs variance Points: 40 , word limit: 450 . Your answer goes here. Question 1-Variance analysis (40 points) SPRINT is clothing company that sells different types of sports clothing. To produce clothing, SPRINT needs to buy materials. In addition to material costs, SPRINT must put in labor hours. Finally, there are fixed overhead costs-i.e., the rent for their buildings, for which SPRINT signs a one-year contract at the beginning of each year. For 2020, SPRINT expected the rent to amount to $750,000. Regarding materials, past data indicates that: (1) materials (e.g., polyester) cost on average $2 per kilogram (i.e., 1,000 gram); and (2) labor costs equal on average $15 per hour. The amount of polyester and number of labor hours required to produce sports clothing depend on the type of clothing. Therefore, the selling price likewise differs for each type of sports clothing. The table below displays the expected numbers per type of sports clothing: At the end of 2020 , it turns out that the actual numbers for SPRINT are as follows: Furthermore, it turns out that the materials costs per kilogram, labor costs per hour and fixed costs were indeed correctly budgeted and, thus, are $2,$15 and $750,000, respectively. Calculate and interpret the following variances. In addition, for each variance, provide a potential economic explanation for its result: a. Sales price contribution variance b. Sales mix contribution variance c. Sales quantity contribution variance d. Fixed costs variance Points: 40 , word limit: 450 . Your answer goes here
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