The plant manager decides that what is needed is an objective appraisal of what should be done. He hires June Collins of Collins and Collins, CPAs. June recommends that the Charlotte plant should use standard cost variance analysis. While not all three product managers agree that this is the best course of action the plant manager makes the final decision and asks June to perform the analysis. June asks that the three product managers aggregate their production information. The following schedule is the result of the request.
Variance Analysis
Variance Stated as Variance
(Recycled material)
Materials Price Variance Per ounce price Unfavorable
Materials Quantity Variance Ounce per unit Favorable
(Non-recycled material)
Material Price Variance Price per package Favorable
Material Quantity Variance Usage per unit Unfavorable
Labor Rate Variance Per hour Favorable
Labor Efficiency Variance Time per unit Favorable
Required:
1. Explain how the above variances could explain the following:
- Scrap Material decreased(recycled material)
- Return Orders increased (Non-recycled material)
- Ordering cost for non-recycled material increased
- Average Unit Cost decreased
- Loss of customers
2. Write a short memo explaining how management could use variance analysis to improve productivity.