Go to YouTube.com and search for clips from the show “Unwrapped” on Food Network

Question

Go to YouTube.com and search for clips from the show “Unwrapped” on Food Network or “How It’s Made” on Discovery Channel. Watch a clip for a product you find interesting. Companies are not likely to disclose everything about their production process and other trade secrets. When you answer the following questions, you may have to make reasonable assumptions or guesses about the manufacturing process, materials and labor.

Questions:

Describe the product being produced. Briefly outline the production process.

What direct materials are used to make the product? In general, what has happened to the cost of these materials over the past year? To find information about the price of materials, you might try one of these sources (or a combination of these sources):

Go to the New York Times website (hyyp://nytimes.com/) or to USA Today (hppt://www.usatoday.com/) and search for each of the materials.

Find the company’s annual report on its website and read its discussion about its cost of production.

Given what you have discovered about the cost of materials for this product, were the price variances for each material likely to be favorable or unfavorable (answer separately for each individual material)?

In general, what has probably occurred to the cost of direct labor for this company? Again, to find clues about its labor cost, you might try one of the options listed in Question 2. If you cannot find anything specific about this company, then discuss what has happened to the cost of labor in general over the past year for that type of product.

Give what you have discovered about the cost of labor, was the labor rate variance likely to be favorable or unfavorable?

It is likely that the company has released information about its quality (efficiency) variances. In general, though, what could cause this company’s material quantity variances to be favorable? What could cause these material quantity variances to be unfavorable?

In general, what could cause this company’s variances to be favorable? What could cause these labor efficiency variances to be unfavorable?

Explanation / Answer

I wish to discuss about the manufacturing process of toilet soaps of JOCIL producers limited. It is one of the largest toilet soap manufacturer in India. Many marketers like UPL, WIPRO, GODREJ etc gives subcontracts too jokily.

The major raw materials are jasmine oil, fat, cheese, sandal, glycerin etc. these are the major direct material used to produce soaps. The cost of these materials is depending on various factors like availability of material, quality of the material, and other purchase taxes involves in this.

When I found the balance sheet of this firm, I noticed that the cost of manufacturing under direct cost is about 28% on total cost. It means it is the proportionate of amount which directly links with production of soaps and the materials. The variance of this cost is nominal when compares to several years. The increase in the cost is nearly 1.8 to 2.3% for the last 10 years, which is nominal in nature. The material cost is nominal and less variance is there.

When it comes to direct labor and indirect labor, their costs, they increased in abnormal way. The cost associated with labor and all employees include this. This component has increased more than 8% on average for the last 10 years, which shown major impact on the firm. The firm total cost increases due to this component, which show impact on the performance of the firm as a whole. This cost variance is huge in nature, which is unfavorable to the firm. Even the actual labor cost is higher than budgeted labor cost up to 12%, which is unfavorable to the firm.

When the actual use of material is less than the budgeted use of material for the same level of production, it is called favorable variance of material. When the usage of material is higher than budgeted for the same level of production, it is said to be as unfavorable variance of material. To this firm the material variance is nominal favorable. The actual usage of material is less than the budgeted level, hence it is said to be favorable variance of material.

There are many reasons for material variance unfavorable. Some of they are: when the poor quality material available, wastage of material is higher due to wrong production process, unskilled labor, when the labor production rate is less than expected rate, due to wear and tear of storage practices and so on.

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