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SARAH'S SOAPS VARIANCE ANALYSIS Budget Actual Fav(Unfav) Market Size(12 Packs) 50000 60000 10000 Sarahs Soap 12 Packs 10000 11000 1000 Share % 20.0% 18.3% -1.7%

SARAH'S SOAPS VARIANCE ANALYSIS

Budget

Actual

Fav(Unfav)

Market Size(12 Packs)

50000

60000

10000

Sarahs Soap 12 Packs

10000

11000

1000

Share %

20.0%

18.3%

-1.7%

Revenue

100000

104500

4500

Material

20000

21780

(1780)

Direct Labor

16000

18150

(2150)

Variable Mfg OH

15000

13860

1140

Contribution Margin

49000

50710

1710

Manufacturing

10000

11000

(1000)

Marketing/Advertising

8000

10000

(2000)

Engineering

10000

8000

2000

Administration

10000

10500

(500)

Profit

11000

11210

210

Specifically, we learn:

  • The market for Sarahs soap is budgeted to be 50,000 dozen per month (therefore she is budgeting a 20% market share 10,000/50,000). The actual market for the month turned out to be 60,000 dozen
  • In addition to variable material and direct labor costs, Sarahs manufacturing operations incurs variable overhead utilities for machinery, fringe benefits for direct labor, etc. She has budgeted this at 0.5 machine hours per dozen at a cost of $3.00 per machine hour; for the month. 0.45 machine hours were used per dozen at an actual cost of $2.80 per machine hour
  • Sarah also has four categories of fixed costs with budget and actual results as follows:

Budget Actual

Manufacturing

10000

11000

Marketing/Sales

8000

10000

Engineering

10000

8000

Administration

10000

10500

Using the blank template posted on Blackboard, re-compute all the variances for Sarahs Soaps for the month. Note: /\ in the template means change in value. Additional variances you will need to calculate are:

  • Market size variance
  • Market share variance (together these two equal sales volume variance)
  • Variable OH usage/efficiency variance (similar to DL usage/efficiency variance)
  • Variable OH cost variance (similar to DL cost variance)
  • The four fixed cost variances (for this class, we will use just the raw differences as above)

1. Explain the $210 variance for the month and recommend possible corrective actions using the six-step process.

After the variance analysis, it found out that total variances is $210.

Recommend possible corrective actions using the six-step process.

  1. Set the benchmark (budget, strategic plan, etc.)
  2. Record the actual results to compare to benchmark
  3. Compute the variances
  4. Assign responsibility
  5. Determine causes of significant variances (both good and bad)
  6. Take corrective action

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