Reference no: EM133175805
Question - Aussie Inc. manufactures a full line of well-known sunglasses frames and lenses. Aussie uses a standard costing system to set attainable standards for direct materials, labor, and overhead costs. Aussie reviews and revises standards annually, as necessary. Department managers, whose evaluations and bonuses are affected by their department's performance, are held responsible to explain variances in their department performance reports.
Recently, the manufacturing variances in the Image prestige line of sunglasses have caused some concern. For no apparent reason, unfavorable materials and labor variances have occurred. At the monthly staff meeting, Jack Barton, manager of the Image line, will be expected to explain his variances and suggest ways of improving performance. Barton will be asked to explain the following performance report for 2012:
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Actual Results
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Static-Budget Amounts
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Units Sold
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4,850
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5,000
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Revenues
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$397,700
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$400,000
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Variable Manufacturing Costs
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$234,643
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$216,000
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Fixed Manufacturing Costs
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$72,265
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$75,000
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Gross Margin
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$90,792
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$109,000
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Barton collected the following information: The actual variable manufacturing costs in 2012 were:
Direct materials: Frames. Actual costs of $37,248. The actual grams used were 3.20 g per unit.
Direct materials: Lenses. Actual costs of $100,492. The actual grams used were 7.00 g per unit.
Direct manufacturing labor: Actual costs of $96,903. The actual labor rate was $14.80 per hour.
Required - Make a report that includes:
1. Sales-volume and flexible-budget variance for operating income, showing specific variances for revenue and each element of cost separately (i.e. Lenses, Frames, Direct labor, etc.).
2. Compute the price and efficiency variances for Lenses.
3. How do the variances in requirement (2) above relate to the numbers in requirement (1) above?