Problem
Superior Car Co. expects to produce and sell 1,000 cars this year. Superior wants to sell each car for $20,000. Each requires 2,000 lbs. of metal and metal costs $3 per pound. Superior pays their employees in assembly $25 per hour and each car requires 150 hours of assembly. Superior pays $100 per tire and each car requires 4 tires. Superior also requires each car to have 1 spare tire and Superior pays $50 for each spare tire. Based on this information, how much would Superior estimate their operating income to be?
Use the information in the previous question to help answer the following. Superior was able to produce and sell 1,000 cars. The price of metal increased to $4 per pound but Superior was able to use only 1,800 lbs. of metal per car. Superior was able to pay their assembly employees $20 per hour but each car used 200 hours of assembly. The price of tires went up and Superior had to pay $150 per tire and $75 for spare tires. Because of some of the cost increases, Superior raised the price of their cars to $22,000 each. Calculate the variances between the budget and actual costs for metal, labor, and tires. Also calculate the variance in operating income.