Question
Ultra, Inc., manufactures a full line of well-known sunglass frames and lenses. Ultra uses a standard-costing system to set attainable standards for direct materials, labor
Ultra, Inc., manufactures a full line of well-known sunglass frames and lenses. Ultra uses a standard-costing system to set attainable standards for direct materials, labor and overhead costs. Ultra reviews and revises standards annually, as necessary. Department manageres, whose evaluations and bonuses are affected by their department's performance, are being held to explain variances in their department performance reports.
Recently, the manufacturing variances in the Bravo prestige line of sunglasses have caused some concern. For no apparent reason, unfavorable materials and labor variances have occurred. At the monthly staff meeting, Stuart Forman, manager of the Bravo ling, will be expected to explain his variances and suggest ways of improving performance. Forman will be asked to explain the following performance report for 2012;
Actual Results | Static-budget Amounts | |
Units Sold | 7,350 | 7,800 |
Revenues | $573,300 | $585,000 |
Variable manufacturing costs | 338,982 | 250,380 |
Fixed manufacturing costs | 100,000 | 111,000 |
Gross margin | 134,318 | 223,620 |
Forman collected the following information:
Three items comprised the standard variable manufacturing costs in 2012:
-Direct materials:frames. Static budget cost of $53,820. The standara input for 2012 is 3 ounces per unit.
-Direct materials: Lenses. Static budget cost of $93,600. The standara input for 2012 is 4 ounces per unit.
-Direct manufacturing labor: Static budget cost of $102,960. The standard input for 2012 is 1.10 hours per unit.
Assume there are no variable manufacturing overhead costs.
The actual variable manufacturing costs in 2012 were:
-Direct materials:frames. Actual cost of $64,680. Actual ounces used were 4.40 ounces per unit.
-Direct materials: Lenses. Actual cost of $145,530. Actual ounces used were 6.00 ounces per unit
-Direct manufacturing labor: Actual cost of $128,772. The actual labor rate was $14.60 per hour.
1- Prepare a report that includes the following:
A) Selling-price variance
B) Sales-volume variance and flexible-budget variance for operating income
C) Price and efficiency variances for the following:
-Direct materials: frames
-Direct materials: lenses
-Direct manufacturing labor
2- Give three possible eplanations for each of the three price and efficiency variances at Ultra in requirement 1c.
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