Scm 500 Final Exam

SUJIE GUAN

PART I.

1. Exhibit 1. All relevant variances are presented below

[pic 1]

The budgeted and actual profits amounts are presented below

[pic 2]

I think that the marketing manager might have a legitimate case. From the Exhibit 1, the flexible budget variance of variable manufacturing costs and Fixed manufacturing costs are $900,000, and $400,000. Both of them are favorable variance, there are trade-off among costs, For example, the production might generate favorable manufacturing costs by using low-quality raw materials or hiring less-skilled and lower-paid employees, but this might also lead to more defective products, resulting in unfavorable after-sales services costs, as both variable and fixed manufacturing costs were spent less than the flexible budget, the variable and fixed marketing/customer care costs are going up in the actual budget. The flexible budget variance of variable and fixed market /customer care costs are $-380,000 and $-400,000 respectively. Both variances are unfavorable since more after-sales service to handle a lot of customer complaints incurred more unfavorable costs.

Efficiency variances for installation labor

= (Actual quantity used- standard quantity allowed for actual output) * Standard price per installation hour = (98,000-90,000) *$16

= $128,000 Unfavorable

Price variances for installation labor

= (Actual price -Standard price) *Actual quantity

= (1,340,000/98,000 hours-$16) * 98,000

= -228,000 Favorable

Additional information about the costs of production, such as direct materials, and variable overhead would help. Since there should be a strong cause-and-effect relationship between cost-allocation bases and the overhead costs that are applied using these bases. A flexible budget would help in evaluating the performance of the production manager, since it is a revised original budget based on the actual activity level achieved for a period. The original budget is established before the period begins for planning purposes, and the flexible budget is established after the period ends for control and evaluation purposes.

Cost of direct material: we need more information about the standard price and standard quantities used to calculate the flexible budget amount, and then we should additional information about the actual quantities of material used and the actual price per unit of material to calculate the total actual cost of direct material. Through dividing flexible-budget variance into price and quantity variance, we can better evaluate managers on variance that they can control.

Cost of variable marketing/customer care: we should first allocate variable marketing overhead to output based on some cost driver and then calculate the flexible budget variance, dividing it into two variances, efficiency variance and spending variance. The variable efficiency variance could tell management how much variable marketing overhead cost it waste if the variance is unfavorable (or save, if the variance is favorable). The difference between efficiency and spending variances provides the management a way to for more investigation.