The implementation of these variance costs is to assist in understanding the disparities between the actual and planned costs. This will assist Kaufmann Manufacturing Company reduce its costs as the other financial period sets in.
Raw material price
It is computed as; (Actual price – Budgeted price) × Unit price
1st 6 months = (2400 – 2281) × 12 = $1,428
2nd 6 months = (2400 – 2432) × 12 = $384
Raw material Usage
1st 6 months = 590,000/3 = (196,666.70 × 12) = $2,360,000.40
2nd 6 months = 600,000/3 = (200,000 × 12) = $2,400,000
Raw materials activity
1st 6 months = (Actual activity – Standard activity) = (590,000 – 590,000) = 0
2nd 6 months = (600,000 – 600,000) = 0
Direct labor price (rate)
(Actual rate – standard rate)
1st 6 months = (22 – 11) × 400,000 = $4,400,000
2nd 6 months = (22 – 11) × 425,000 = $4,675,000
Direct labor efficiency
1st 6 months = (400,000 – 376,000) × 11 = $264,000
2nd 6 months = (425,000 – 424,000) × 11 = $11,000
Direct labor activity
1st 6 months = (200,000 – 188,000) × 11 = $132,000
2nd 6 months = (200,000 – 212,000) × 11 = $132,000
Indirect labor spending
1st 6 month =
2nd 6 months =
Supplies spending
1st 6 months = (70 × 22) – (70 × 11) = 770
2nd 6 months = (76 × 22) – (76 × 11) = 836
Power spending
1st 6 months = (1,200 × 22) – (1,200 × 11) =$13,200
2nd 6 months = (1,200 × 22) – (1,274 × 11) = $12,386
Indirect labor efficiency
1st 6 months = Undefined
2nd 6 months = Undefined
Supplies efficiency
1st 6 months = (70 – 70) × 0.35 = 0
2nd 6 months = (76 -70) × 0.35 = 2.1
Power efficiency
1st 6 months = (1200 1200) × 6 = 0
2nd 6 months = (1274 – 1200) × 6 = 144
Indirect labor activity
1st 6 months = (1080 × 5.4) – (1080 × 5.4) = 0
2nd 6 months = (1143 × 5.4) – (1080 × 5.4) = 340
Supplies activity
1st 6 months = Undefined
2nd 6 months = Undefined
Power activity
1st 6 months = (1200 × 6) – (1200 × 6) = 0
2nd 6 months = (1274 × 6) – (1200 × 6) = 444
Maintenance budget variance
1st 6 months = (2172 × 10.25) – (2050 × 10.25) = $1,250.50
2nd 6 months = (1676 × 10.25) – (2050 × 10.25) = (-) $3,833.50
Supervision budget variance
1st 6 months = (1800 × 9.65) – (1930 × 9.65) = $1,254.50
2nd 6 months = (1930 × 9.65) – (1930 × 9.65) = 0
Depreciation budget variance
1st 6 months = (1460 × 7.30) – (1460 × 7.30) = 0
2nd 6 months = (1460 × 7.30) – (1460 × 7.30) = 0
Insurance budget variance
1st 6 months = (353 × 1.75) – (350 × 1.75) = 5.25
2nd 6 months = (353 × 1.75) – (350 × 1.75) = 5.25
Production volume variance
1st 6 months = (188,000 × 74.7) – (200,000 × 74.7) = (-) $896,400
2nd 6 months = (212,000 × 74.7) – (200,000 × 74.7) = 896,400
Sales price variance
1st 6 months = (19,080 – 18,000) = $1,080
2nd 6 months = (17,484 – 18,000) = (-) $516
Sales volume variance
1st 6 months = (200,000 – 212,000) = $12,000
2nd 6 months = (200,000 -188,000) = $12,000
The income earned rose high due to the increase in price per unit of the produced good. The loss of money incurred during the period of increased sales would be as a result of the increase in direct cost of labor, increase in power activity cost, and a rise in supplies spending. Sandy’s sales forecast was 200,000 units during the second six months of operation but failed to attain the projected target. The sales projection during the second six months also dropped from $18,000 to $17,484. Sandy maintained ensured a maintained sales volume variance.
Carlos the production manager improved his performance as he enhanced the production volume variance within the second six months of operation. In addition, the production manager improved the efficiency of the laborers in production. However, the material usage increased from 590,000lbs to 600,000 yet production output forecast was constant and the final produce was reduced. The cost overruns that led to a $217,000U variance were as a result of an increase in direct labor hours resulting in an increase in the company’s wage bill, an increase in the indirect labor costs would also result in increase in production.
It is important for Carlos to handle raw material costs over the year since his expertise in production would enable the company find lean ways of manufacturing thus reducing costs. The material price should not be the basis for Carlos’ evaluation since it the prices are depended on prevailing market conditions. On the other hand, Carlos should improve in making efficient the labor provided by working to achieve reduced direct labor costs over the operating period. The level of performance of both Sandy and Carlos should be improved by ensuring reduced production costs by reducing labor hours and maintaining efficiency in sales.
The company’s position is dependent on lean manufacturing and efficiency in the sales department. Therefore, the labor costs that increase should be controlled and minimized. The company’s employees including Carlos have dropped in performance thus reducing efficiency. Consequently, Mary should investigate the labor activity in production, sales, and respective costs incurred by the company.
