Variance Project

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:

Direct costs Unit Costs

Raw materials (10 lbs at $3.00/lbs $30.00

Direct Labor (.5 hours at $12/hour) $6.00

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 $27,500 in

gross profit, but actual gross profit shows a loss of $23,190. The general manager, who leads the

profit center, received a variance report from production, but that didnt 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:

Please create a report (excel, powerpoint,does not matter, we just need a report created for this!)

Production Volume (units) Sales Volume (units) Sales Price per unit Direct labor hours Direct labor cost Raw Materials purchased (lbs) Raw Materials purchased ($) Raw Materials used (lbs) Overhead Costs ($) Actual 11,000 units 10,000 units $45.00 5,610 hours $66,759 120,000 lbs $384,000 115,500 lbs $84,050 Budget 11,000 units 11,000 units $46.00 5,500 hours $66,000 110.000 lbs $330,000 110.000 lbs $82,500 The report should include: Projected income statement, actual income statement, and flexible budget All relevant variances Interpretations of those variances Hint: Overhead is applied based on direct labor hours and over/underapplied overhead is applied directly to cost of goods sold. Production Volume (units) Sales Volume (units) Sales Price per unit Direct labor hours Direct labor cost Raw Materials purchased (lbs) Raw Materials purchased ($) Raw Materials used (lbs) Overhead Costs ($) Actual 11,000 units 10,000 units $45.00 5,610 hours $66,759 120,000 lbs $384,000 115,500 lbs $84,050 Budget 11,000 units 11,000 units $46.00 5,500 hours $66,000 110.000 lbs $330,000 110.000 lbs $82,500 The report should include: Projected income statement, actual income statement, and flexible budget All relevant variances Interpretations of those variances Hint: Overhead is applied based on direct labor hours and over/underapplied overhead is applied directly to cost of goods sold