Chapter 7, Problem 7.43P

Use of materials and manufacturing labor variances for benchmarking. You are a new junior accountant at In Focus Corporation, maker of lenses for eyeglasses. Your company sells generic-quality lenses for a moderate price. Your boss, the controller, has given you the latest month’s report for the lens trade association. This report includes information related to operations for your firm and three of your competitors within the trade association. The report also includes information related to the industry benchmark for each line item in the report. You do not know which firm is which, except that you know you are Firm A.

1. 1. Calculate the total variable cost per unit for each firm in the trade association. Compute the percent of total for the material, labor, and variable overhead components.
2. 2. Using the trade association’s industry benchmark, calculate direct materials and direct manufacturing labor price and efficiency variances for the four firms. Calculate the percent over standard for each firm and each variance.
3. 3. Write a brief memo to your boss outlining the advantages and disadvantages of belonging to this trade association for benchmarking purposes. Include a few ideas to improve productivity that you want your boss to take to the department heads’ meeting.