Variance Analysis and Behavioural Implications in Cost Accounting ACC4025

Question 1

(a)Direct labour rate variance = (AH AR) (AH SR)

(b)Direct labour efficiency variance = (ActualHoursWorked ?StandardHoursAllowed) StandardRateperHour

(c)Material price variance = Actual quantity x (Standard price - Actual price)

(d)Material quantity variance = Standard price x (Standard quantity - Actual quantity)
Calculation of standard quantity: Actual units x Standard quantity per unit

Calculation of material Quantity variances: Standard price x (Standard quantity - Actual quantity)

(e)Variable overhead spending variance = (Actual hours x Standard rate) - Actual variable overhead = (9,900 x $ 2) - $ 18,800 = $ 1,000 (F)

(f)Variable overhead efficiency variance = Standard rate x (Standard hours -Actual hours)
Standard hours: Actual units x Standard hours per unit = 2,200 x 4.5 hours per unit
= 9,900 hours
Variable overhead efficiency variance = $2 x (9,900 - 9,900) = $ 0

(g)SalesPriceVariance= (ActualSellingPrice?BudgetedSellingPrice) ActualUnitsSold SalesPriceVariance
= ($ 200?$ 200) 2,200 = 0

(h)SalesVolumeVariance=(ActualUnitsSold?BudgetedUnitsSold)BudgetedContrib-utionMarginperUnit
SalesVolumeVariance = (2,200?2,000) X ($122,000/2,000)
SalesVolumeVariance = 200 X 61 = $ 12,200 (F)

Reconciliation of contribution margin variance ($14,660 Unfavourable variance):-

The primary cause of the unfavourable contribution margin variance is an upsurge in direct labour & material costs. The advantages of raising revenue were mitigated by the unfavourable material price, quantity, & labour rate variations, notwithstanding the favourable sales volume variance. As a result, the overall contribution margin dropped & the total variable costs rose significantly.

2 (a) Behavioural factors that may promote friction among the production managers & between the production managers & the maintenance manager include:-
More Machine Downtime: The PCB & RH group managers felt annoyed with the maintenance manager because equipment kept breaking down. This meant workers had nothing to do & then had to work overtime, which made labor costs go up. This put even more stress on how they got along.
Production Pressure: The Assembly Group needs timely inputs from the PCB & RH groups to hit higher production goals. When the Assembly Group manager pushed to increase output, this pressure forced the PCB & RH groups to turn down parts instead of changing them. This created friction between these production managers.

2. (b) Jack Rath's analysis falls short & lacks depth. Rath noted the labor concerns, but he skipped over other crucial factors that lead to the unsatisfactory effects, which included material differences & maintenance challenges that brought about downtime. Rath's report might be seen by production teams to be partial & insufficient given that it focuses primarily on labor-related worries without considering the true causes or the broader context. This can cause the department managers to feel even less confident of their peers & even less satisfied.

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