The Special Widget division manufactures a product called SW for Global Corporation. The plant is a completely autonomous subsidiary that sells SWs to other subsidiaries of Global Corporation, as well as outside companies. At the beginning of the ear the controller for Special Widget estimates sales and unit costs based on projections from past quarters' data. Projected sales for the quarter are 11,000 units and budgeted unit costs are as follows: Unit Costs $30.00 $6.00 Direct costs Raw materials (10 kilograms at $3.00/kilogram Direct Labor (5 hours at $12/hour) Total direct cost per unit $36.00 At the end of the quarter the budget and the actual results are compared. Usually the variances between the projected budget and the actual results are negligible. However, this quarter the results are drastically different from the budget. Projections estimated $30,000 in gross profit, but actual gross profit shows a loss of $30,690. The general manager, who leads the profit center, received a variance report from production, but that didn't explain the entire difference. Having no confidence in his controller, the general manager brought in the internal audit team from Global Corporation. As the internal audit team, the first report required should use variances to explain the entire difference in gross profit and interpret those variances to initiate further investigation or corrective action. Detailed information about production and sales is as follows: Production Volume (units) Sales Volume (units) Sales Price per unit Direct labor hours Direct labor cost Raw Materials purchased (lbs) Raw Materials purchased (S) Raw Materials used (lbs) Overhead expenses (S) Actual 11,000 units 10,000 units $45.00 5,610 hours $66,759 120,000 lbs $384,000 115,500 lbs $84,000 Budget 11,000 units 11,000 units $46.00 5,500 hours S66,000 110,000 Ibs $330,000 110,000 lbs $80,000 The report should include: All relevant variances Interpretations of those variances Recommended corrective action Further questions to ask before taking corrective action and potential actions based on potential answers The Special Widget division manufactures a product called SW for Global Corporation. The plant is a completely autonomous subsidiary that sells SWs to other subsidiaries of Global Corporation, as well as outside companies. At the beginning of the ear the controller for Special Widget estimates sales and unit costs based on projections from past quarters' data. Projected sales for the quarter are 11,000 units and budgeted unit costs are as follows: Unit Costs $30.00 $6.00 Direct costs Raw materials (10 kilograms at $3.00/kilogram Direct Labor (5 hours at $12/hour) Total direct cost per unit $36.00 At the end of the quarter the budget and the actual results are compared. Usually the variances between the projected budget and the actual results are negligible. However, this quarter the results are drastically different from the budget. Projections estimated $30,000 in gross profit, but actual gross profit shows a loss of $30,690. The general manager, who leads the profit center, received a variance report from production, but that didn't explain the entire difference. Having no confidence in his controller, the general manager brought in the internal audit team from Global Corporation. As the internal audit team, the first report required should use variances to explain the entire difference in gross profit and interpret those variances to initiate further investigation or corrective action. Detailed information about production and sales is as follows: Production Volume (units) Sales Volume (units) Sales Price per unit Direct labor hours Direct labor cost Raw Materials purchased (lbs) Raw Materials purchased (S) Raw Materials used (lbs) Overhead expenses (S) Actual 11,000 units 10,000 units $45.00 5,610 hours $66,759 120,000 lbs $384,000 115,500 lbs $84,000 Budget 11,000 units 11,000 units $46.00 5,500 hours S66,000 110,000 Ibs $330,000 110,000 lbs $80,000 The report should include: All relevant variances Interpretations of those variances Recommended corrective action Further questions to ask before taking corrective action and potential actions based on potential answers
