3. Yes, in some situations, per unit variance is much more useful than the series of functional variances. Company can define the reasons of the variances much more clearly by calculating the per unit variance. And company can fix the problem by directly control the agency in charge. To analysis the variance, firstly we need to calculate the variable cost per unit of product. Using Exhibit 3(Total variable manufacturing costs) we can easily get the cost per unit of the products (Exhibit 4). From the exhibit, we can find out that all the actual cost per unit is higher than the standard ones which mean all the variances are unfavorable. Then we can calculate the exact number of price variance and usage variance for materials and labor.
The data and calculation is showed below:
1) Material variances:
a) Price variance= [31.50-30] *113400+ [20.50-20.00] *1375+ [122-120] *(10800+205) + [367-350] *(10800+123) =378488.5 (Unfavorable)
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The company should now focus on the production department to ignore these kinds of waste to reduce the usage variance.
2) Labor variances:
a) Price variance= [15.25-15] *100200+ [13.50-13] *5500+ [14.50-14] *8000=31800 (Unfavorable)
The production supervisor should be responsible for price variance. It is now 31800 unfavorable which mean the company may use the semiskilled workers to do the highly skilled task that cause unanticipated overtime for the production process. The supervisor should fire these workers and hire more skilled workers for the next year’s task.
b) Usage variance= [100200-100000] *15+ [5500-5000] *13+ [8000-7500] *14=16500 (Unfavorable)
Production department supervisors are responsible for this. Because the labor usage variance is 16500 unfavorable which mean the companies use more labor than expected, low morale, machine breakdowns and poor planning can all waste workers’ time and result in the low productivity. The supervisor from production department should determine the cause of the low productivity and fix it as soon as possible.
3) Overhead variances: (No price variance and Usage variance for overhead)
|Variable manufacturing costs |Standard |Actual |
|Materials |8505500 |8951487 |
|Labor |1686500 |1718300 |
|Overhead |1240000 |1300000 |
| |Standard |Actual |
|Variable Materials cost per unit of product |787.55 |828.84 |
|Variable labor cost per unit of product |156.16 |159.10 |
|Variable overhead cost per unit of product |114.81 |120.37 |