Only need the answer to number 4
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
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.
Direct materials | $60.00 |
Direct labor | 40.00 |
Variable |
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.
- Identify the variances that should be investigated according to company policy. Show calculations to support your answer.
- What recommendations would you make for the company’s current policy?
- Identify the highest favorable variance and highest unfavorable variance and provide one possible cause of each variance.
- 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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