Only need the answer to number 4

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Only need the answer to number 4

Wildcat Pizza, Inc. produces batches of frozen pizzas to sell at a variety of grocery stores throughout the country. Standard cost information for each batch is presented as follows:

Direct materials $60.00
Direct labor 40.00
Variable overhead 30.00
Total $130.00

Wildcat produced and sold 100,000 batches for the year and encountered the following production variances:

Direct materials price variance (300,000) Favorable
Direct materials quantity variance 290,000 Unfavorable
Direct labor rate variance (170,000) Favorable
Direct labor efficiency variance (140,000) Favorable
Variable overhead spending variance 150,000 Unfavorable
Variable overhead efficiency variance (210,000) Favorable
Total variable production cost variance (380,000) Favorable

Company policy is to investigate all unfavorable variances above 5 percent of the flexible budget amount for direct materials, direct labor, and variable overhead.

  1. Identify the variances that should be investigated according to company policy. Show calculations to support your answer.
  2. What recommendations would you make for the company’s current policy?
  3. Identify the highest favorable variance and highest unfavorable variance and provide one possible cause of each variance.
  4. Sarah Longmeadow, the owner of Wildcat Pizza, reviewed the company’s variance analysis report. The materials price variance of $(300,000) was the most significant favorable variance for the month, and the materials quantity variance of $290,000 was the most significant unfavorable variance. Sarah would like to reward the company’s purchasing agent for achieving such substantial savings by giving her a $2,000 bonus while not providing any bonus for the production manager.
  • Do you agree with Sarah’s approach to awarding bonuses? Explain.
  • What circumstances might lead to the conclusion that the purchasing agent should not receive a bonus?
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