Unit #5 – Reading
- Heisinger, K., & Hoyle, J. B. (n.d.). Accounting for Managers. Retrieved from https://2012books.lardbucket.org/books/accounting-for-managers/index.html
- Chapter 9 – How Are Operational Budgets Created?
- Chapter 10 – How Do Managers Evaluate Performance Using Cost Variance Analysis?
This text explains the budgeting process and how managers use budgets to evaluate performance. It describes flexible budgets and introduces standard costs, which are used to calculate budget variances. Illustrations using applied examples are also provided.
Optional Video
- Chegg. (2016, April 5). Static and Flexible Budgets[Video File].
Assignment – Case Study Unit #5
Submit a paper which is 2 pages in length (no more than 3-pages), exclusive of the reference page. Paper should be double spaced in Times New Roman (or its equivalent) font which is no greater than 12 points in size. The paper should cite at least three sources in APA format. One source can be your textbook.
Describe the circumstances of the following case study and recommend a course of action. Explain your approach to the problem, perform relevant calculations and analysis, and formulate a recommendation. Ensure your work and recommendation are thoroughly supported.
Case Study:
Papaya Partners is a distributor of papayas. They purchase papayas from individual growers and package them in 10-pound cartons for delivery to their various customers, generally supermarkets. Last month, they budgeted to sell $500,000 worth of cartons at a price of $25 each. Actual sales met a budget of $500,000 at $25 per carton.
Management has received cost information based on actual performance and needs to understand the drivers of the overall variance from the budget. They have asked you, as an analyst in their management accounting department, to calculate and explain the variances. The following data has been provided:
| Budget | |
| Cost of fruit @ 10 pounds per carton | $ 200,000 |
| Cost of packaging @ 1 pound per carton | $ 10,000 |
| Labor costs @ .5 hours per carton | $ 90,000 |
| Total Cost | $ 300,000 |
| Actual | |
| Cost of fruit @ 10 pounds per carton | $ 244,200 |
| Cost of packaging @ .55 pound per carton | $ 11,000 |
| Labor costs @ .75 hours per carton | $ 150,000 |
| Total Cost | $ 405,200 |
| Unfavorable variance | $105,200.00 |
Specifically, management needs to know the:
- Standard cost per unit (carton)
- Actual cost per unit
- Direct materials price variances
- Direct materials usage variances
- Direct labor rate variance
- Direct labor efficiency variance
In addition, they would like to understand how the variances are calculated and what caused them. They would also like a recommendation on what might be done to improve the variances.
For this assignment, compute all required amounts and explain how the computations were performed. Describe whom you would work with to determine the causes of the variances and hypothesize on what caused the variances. Based on your analysis, recommend actions that management could take to improve the variances.
Superior papers will:
- Perform all calculations correctly.
- Articulate how the calculations were performed.
- Assess the variances computed and evaluate the operational results (i.e., is performance better or worse than budgeted?).
- Explain with whom you would work to identify the root causes of the variances.
- Propose well-thought-out causes for each variance.
- Conclude on which variances require management’s attention and recommend courses of action.
Assignment will be grade on each of the following:
- Provides correct values for computations. 30%
- Articulates the approach to solving the problem and how the calculations were performed. All formulas are correct for the 6 variances. 20%
- Assesses the variances computed and evaluates the operational results as having favorable or unfavorable variances. Explains with whom one would work to identify the root causes of the variances. 15%
- Proposes well- thought-out causes for each variance. Concludes on which variances require management’s attention and recommend courses of action. 15%
- Writing Clarity and Quality 10%
- APA Formatting 10%
