Kitty Kallen is a wonderful singer. Her record company gave her a $1,000,000 sig

Question

Kitty Kallen is a wonderful singer. Her record company gave her a $1,000,000 signing fee to agree to be her exclusive music distributor for the next two years. That company, Rheims Rhymes Ltd., plans to use a number of approaches, downloads, concert appearances, and including her music in a new iPod type player they hope will be the next technological breakthrough. They call it the iPuppy. It’s a music storage/player and cuddly furry toy puppy all in one. Their initial production run of iPuppies is budgeted for 250,000. Turns out they went ahead of budget and made 300,000 iPups in their first run. The buy the iPuppies from a toy manufacturer at a fixed contracted price and install three electronic transistors in each. The transistors are a bit tricky, prices go up and down, and if they are not installed properly they have to be scrapped with new transistors replacing them. They want to track their PERFORMANCE for the installation process, using the transistors are their material cost, and the associated installation labor. They budgeted the transistors to cost $12 each, and budgeted that it would take four transistors for each successfully built iPuppy. (One would be scrapped.) They budgeted for ten minutes installation of labor time for each, at $20/hour.

Actual costs to make the 300,000 iPuppies were: Material costs were actually $14,700,000 for 1,050,000 transistors used. They actually only bought 800,000 transistors because they had 250,000 in inventory.) Labor cost were $810,000. Hours used in production 45,000.

Calculate:

1. The Flexible Budget Variances for Material (transistors) and Labor. 2. The Sales Volume Variances for Material (transistors) and Labor. 3. Explain what each of the above variances are (do it in your own words, using a glossary definition will do you no good for the test on Wednesday). 4. Calculate the Material (transistor) Variances (price and quantity). 5. Calculate the Labor Variances (price[rate] and quantity [efficiency]). Do yourself a big favor and spend some time on this. Go slow! Get Organized >>> get the relevant information, and go “step-by-step”

Explanation / Answer

1) Flexible budget variance for materal and labor

Materials 1,050,000 * 12          = $12,600,000    - actual $14,700,000 = $2100,000(U)

Labor            45,000 * 20         =          900,000    - Actual    $ 810,000   =   $90,000(F)

2) Sales volume variance fo rmaterial and labor

Materials 300,000 *48 = $14,400,000            less Actual $14,700,000   = $ 30,000(U)

Labor      300,000 *2    = $600,000 less               Actual $810,000       = $210,000(U)

Flexible Budget Variance for materials & labors shows the cost for actual mateirals used & labor hours consumed at standard cost of each transistor and per hour.

Whereas sales volume variance signifies athe actual units produced abd sold at standard cost per unit.

4) Material price varianc e= ( Std price - actual price ) Actual qty

                                            = (12 - 14) 1050,000

                                           = $2,100,000(U)

Material qty variance = ( Std qty for actual prodiction - actual qty ) Std rate

                                  = ( 4 * 300,000 - 1050,000)12

                                = 1,800,000(F)

(5) Labor rate vairance = (20 -18)45,000

                                      = $90,000(F)

Efficiency variance = (.10 * 300,000 - 45000) 20

                                  = $300,000(U)

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