Reference no: EM131810152

Problem - Variance Analysis

The plant manager decides that what is needed is an objective appraisal of what should be done.  He hires June Collins of Collins and Collins, CPAs.  June recommends that the Charlotte plant should use standard cost variance analysis.   While not all three product managers agree that this is the best course of action the plant manager makes the final decision and asks June to perform the analysis.  June asks that the three product managers aggregate their production information.  The following schedule is the result of the request.

Variance Analysis

Variance                                              Stated as                                 Variance

(Recycled material)

Materials Price Variance                        Per ounce price                         Unfavorable

Materials Quantity Variance                   Ounce per unit                          Favorable

(Non-recycled material)

Material Price Variance                          Price per package                     Favorable

Material Quantity Variance                     Usage per unit                          Unfavorable

Labor Rate Variance                              Per hour                                  Favorable

Labor Efficiency Variance                       Time per unit                           Favorable

Required:

1. Explain how the above variances could explain the following:

• Scrap Material decreased (recycled material)
• Return Orders increased (Non-recycled material)
• Ordering cost for non-recycled material increased
• Average Unit Cost decreased
• Loss of customers

2. Write a short memo explaining how management could use variance analysis to improve productivity.