Beta Company
Autor: goude2017 • January 9, 2018 • 1,841 Words (8 Pages) • 649 Views
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* Prod. A & B = (4,200 units x 4 lbs)+ (3,600 units x 6 lbs) = 38,400
** Prod. A & B = (4,200 units x 1 lb) + (3,600 units x 2 lbs) = 11,400
As illustrated on the computation above, Beta Company’s production for the month of November for products A and B for the material X is considered favorable as to material rate variance because the actual purchase price is less than the standard purchase price. On the other hand, material Y for products A & B results to an unfavorable material rate variance since the actual purchase price exceeds the standard purchase price.
Generally, in this scenario, the production manager is ordinarily responsible for the quantity variance. If the actual price were used in the calculation of the quantity variance, the production manager would be held responsible for the efficiency or inefficiency of the purchasing manager. Apart from being unfair, fruitless arguments between the production manager and purchasing manager would occur every time the actual price of an input was above its standard price. That is why the standard price is used in computing the quantity variance (Garrison, 2008).
- Calculate the labor rate and efficiency variances for the month.
Labor (for both Products A & B)
Rate Variance (LRV = AH(AR-SR)
= 2,025 (17.50 - 18.00 ) = 2,2025 (-0.50) = (1,012.50) favorable
Efficiency Variance (LEV = SR(AH-SH)
= 18.00 (2,025 - 2,040*) = 18.00 (-15) = (270) favorable
Table 2. Labor rate and efficiency variances for products A & B
* Prod. A & B = (4,200 units x 1/5) + (3,600 units x 1/3) = 2,040
If the labor rate variance and labor efficiency variance are concerned, labor rate variance is said to be favorable for Beta Company because the standard labor rate exceeds the actual rate of labor during the actual production. However, labor efficiency for products A & B resulted unfavorable. The reason maybe because of poorly trained or motivated workers; poor quality materials, requiring more labor time; faulty equipment, causing breakdowns and work interruptions; poor supervision of workers and inaccurate standards. Another important cause of an unfavorable labor efficiency variance may be insufficient demand for the company’s products. Managers in some companies argue that it is difficult, and perhaps unwise, to constantly adjust the workforce in response to changes in the amount of work that needs to be done. In such companies, the direct labor workforce is essentially fixed in the short run. If demand is insufficient to keep everyone busy, workers are not laid off and an unfavorable labor efficiency variance will often be recorded.
- How would your answers to Question 1 and 2 change if you had been told that November’s planned production activity was 4,000 units of A and 4,000 units of B?
There would be no change in answer for Q1 regarding materials price variance since the variables needed to get the MPV didn’t change.
However, the following would be the answer taken into consideration the changes given:
Materials (for both Products A & B)
X
Y
Usage Variance (MUV = SP(AQ-SQ)
= 15 (39,000 - 40,000*) = 15 (-1,000) = (15,000) favorable
= 9.50 (11,000 - 12,000**) = 9.50 (-1,000) = (9,500) favorable
Table 3. Materials usage variances for products A & B
* Prod. A & B = (4,000 units x 4lbs) + (4,000 x 6lbs) = 40,000
** Prod. A & B = (4,000 units x 1lb) + (4,000 x 2lbs) = 8,000
Hence, as shown in the above computation, if November’s planned production activity would change from 4,200 and 3,600 for Products A and B, respectively, to 4,000 units each, it would yield to a favorable variance. This is because the standard quantity required by the company in producing the expected output is larger than the actual quantity used to produced. It can be construed that based on the variance analysis presented that actual usage of materials were lesser than anticipated.
Thus, it is favorable on the part of the company by saving $15,000 and $9,500 for materials X and Y for both products A and B.
Also, for Q2, labor rate variance would not change since data needed in computing LRV remain constant.
But in the case of its efficiency variance, there would be changes too as the activity given changes. Computation below will show the new variance analysis for this case:
Labor (for both Products A & B)
Efficiency Variance (LEV = SR(AH-SH)
= 18.00 (2,025 - 2,133*) = 18.00 (-108) = (1,944) favorable
Table 4. Labor usage variances for products A & B
* Prod. A & B = (4,000 units x 1/5hr) + (4,000 x 1/3hr) = 40,000
Regardless of the change of production, labor efficiency variance of Beta Company remains favorable since despite of the change, the standard hour needed to produce the actual output remain greater than the actual hour used. It is considered that the efficiency of the workers in producing the products has increased or remain positive for the company.
- How would your answers to Question 1 and 2 change if you had been told that November’s sales were 4,000 units of A and 3,500 units of B?
Since the variable regarding sales was taken into account, Q2 would no longer be answerable since its data can only be extracted during the production phase, it is assumed to have the same answer with the previous one. Whereas in Q1, instead of MPV, we’ll use the SPV (Sales Price Variance) and the MUV will be disregarded for this matter.
Below is the computation prepared to arrived at the solution regarding SPV of Beta company where sales for the month was 4,000 units for Product A and 3,500 for Product
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