The first area you have been asked to address for the management team in this report is to help them understand why the actual costs for the new chair are not aligning with the determined standard costs. The company has set up standard costs for labor and each component of the new chair. It now has the actual costs for the previous month's production run. You are asked to determine which costs are meeting the standards and which are not, to analyze the probable cause of the variances, and to provide a recommendation for moving forward. To determine this, you will conduct a variance analysis.

Analyze what the variances to the standards are, including an examination of possible causes.

• Propose at least two recommendations for potential remedies to address the variances.
• Summarize how understanding variance analysis can impact managerial decision making

Week 4 Variance Template a) Price variance = (actual price - standard price) times quantity bought Actual Standard Quantity Price Favorable or price price bought variance Unfavorable Plastic tubing 4.58 4.60 3550.00 71.00 F Fabric 5.20 5.25 $600.00 180.00 F Padding 1.80 1.75 2575.00 128.75 U b) Wage rate variance = (Actual wage rate - standard wage rate) times actual hours Actual Standard Actual Wage rate Favorable or wage rate wage rate hours variance Unfavorable Direct labor 18 18 900 OF c)Total price variance 32.58 32.60 10625 -122.25 F d) Quantity variance = (actual quantity used in production - standard quantity used in production) times the standard price Actual Standard Standard Quantity Favorable or Quantity Quantity Price variance Unfavorable Plastic tubing 3550 3500 4.60 230 U Fabric 3600 3500 5.25 525 U Padding 2575 2500 4.75 356.25 U e) Labor efficiency variance = (actual hours - standard hours) times standard wage Actual Standard Standard Efficiency Favorable or hours hours wage variance Unfavorable Direct labor 900 10OO 18 -1800 F f) Total quantity variance -688.75 F TOTAL VARIANCES Plastic tubing 159 U Fabric 345 U Padding 185 U Direct labor (1,800) F TOTAL 81 1) F