Basics of Variance Analysis, Variable Inputs Basuras Waste Disposal Company has a long-term contract with several large cities to collect garbage and trash from residential customers. To facilitate the collection, Basuras places a large plastic container with each household. Because of wear and tear, growth, and other factors, Basuras places about 200,000 new containers each year (about 20% of the total households). Several years ago, Basuras decided to manufacture its own containers as a cost-saving measure. A strategically located plant involved in this type of manufacturing was acquired. To help ensure cost efficiency, a standard cost system was installed in the plant. The following standards have been established for the product's variable inputs: Line Item Description StandardQuantity Standard Price(rate in $) StandardCost Direct materials 13 lbs. $ 3.50 $45.50 Direct labor 1.7 hrs. 10.00 17.00 Variable overhead 1.7 hrs. 3.00 5.10 Total $67.60 During the first week in January, Basuras had the following actual results: Line Item Description Numerical Data Additional Data Units produced 6,000 Actual labor costs $120,600 Actual labor hours 10,500 Materials purchased and used 69,000 lbs. @ $3.55 Actual variable overhead costs $ 39,300 The purchasing agent located a new source of slightly higher-quality plastic, and this material was used during the first week in January. Also, a new manufacturing process was implemented on a trial basis. The new process required a slightly higher level of skilled labor. The higher-quality material has no effect on labor utilization. However, the new manufacturing process was expected to reduce materials usage by 0.25 pound per container. Required: Note: Enter a negative variance and net effects beginning with a minus sign. Select from the adjacent dropdown list the appropriate designation (F/U/N) or effect/decision choice. 1. Conceptual Connection: Compute the materials price and usage variances. Now, assume that the 0.25 pound per container reduction of materials occurred as expected and that the remaining effects are all attributable to the higher-quality material. Would you recommend that the purchasing agent continue to buy this quality, or should the usual quality be purchased? Assume that the quality of the end product is not affected significantly.
Basics of
Basuras Waste Disposal Company has a long-term contract with several large cities to collect garbage and trash from residential customers. To facilitate the collection, Basuras places a large plastic container with each household. Because of wear and tear, growth, and other factors, Basuras places about 200,000 new containers each year (about 20% of the total households). Several years ago, Basuras decided to manufacture its own containers as a cost-saving measure. A strategically located plant involved in this type of manufacturing was acquired. To help ensure cost efficiency, a
| Line Item Description | Standard Quantity |
Standard Price (rate in $) |
Standard Cost |
|---|---|---|---|
| Direct materials | 13 lbs. | $ 3.50 | $45.50 |
| Direct labor | 1.7 hrs. | 10.00 | 17.00 |
| Variable |
1.7 hrs. | 3.00 | 5.10 |
| Total | $67.60 |
During the first week in January, Basuras had the following actual results:
| Line Item Description | Numerical Data | Additional Data |
|---|---|---|
| Units produced | 6,000 | |
| Actual labor costs | $120,600 | |
| Actual labor hours | 10,500 | |
| Materials purchased and used | 69,000 | lbs. @ $3.55 |
| Actual variable overhead costs | $ 39,300 |
The purchasing agent located a new source of slightly higher-quality plastic, and this material was used during the first week in January. Also, a new manufacturing process was implemented on a trial basis. The new process required a slightly higher level of skilled labor. The higher-quality material has no effect on labor utilization. However, the new manufacturing process was expected to reduce materials usage by 0.25 pound per container.
Required:
Note: Enter a negative variance and net effects beginning with a minus sign. Select from the adjacent dropdown list the appropriate designation (F/U/N) or effect/decision choice.
1. Conceptual Connection: Compute the materials price and usage variances. Now, assume that the 0.25 pound per container reduction of materials occurred as expected and that the remaining effects are all attributable to the higher-quality material. Would you recommend that the purchasing agent continue to buy this quality, or should the usual quality be purchased? Assume that the quality of the end product is not affected significantly.
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