Chapter 11 Variance Analysis Project BUAD 264 Winter 2020

Chapter 11 Variance Analysis Project
BUAD 264
Winter 2020

This project is to be completed in Excel (all parts) and submitted through the Moodle dropbox by 11:55 PM on Sunday, March 29^th, 2020.

The Case:

Linda Trueblood, president of ProSkate, was staring at the most recent quarterly performance report and was not pleased. “How can this be possible?” she asked of her senior management team. “I thought the market for our products had improved and that all we needed to do was maintain our budgeted market share. But this report tells me that our profits are below expectations, and I do not understand that.” She then turned her attention to the manufacturing manager, wondering what story was going to emerge from his side. The performance report she was reviewing contained the following information:

Other information is as follows:

1. Overall profit variance was $107,294 U.
2. Sales revenues were $144,000 lower than the budgeted amount.
3. Contribution margin was $105,144 lower than the budgeted amount.
4. Actual market share was about 0.535% lower than the budgeted 10%.

ProSkate manufactures two types of skates: professional and amateur. The following additional information is available:

1. The company sold 7,200 pairs of professional skates and 18,000 pairs of amateur skates during the quarter, compared with the budgeted quantities of 8,000 and 17,600, respectively.
2. Budgeted unit contribution margins for the professional and amateur models were $185.55 and $40.38, respectively.
3. Direct materials were purchased at the budgeted price of $28 per kilogram; all materials purchased were used during the period. Direct labour was paid $0.50 per hour higher than the budgeted amount of $14 per hour.
4. Total direct materials variance amounted to $5,040 (unfavourable).
5. Direct materials and direct labour used for the amateur model were the same as the standard quantity and hours (0.28 kilograms per unit and 0.40 hours per unit, respectively). Standard quantity and hours per unit of the professional model were 0.40 kilograms and 0.75 hours.
6. The total direct materials and direct labour used for the professional model during the quarter were 3,060 kilograms and 5,040 hours, respectively.
7. Direct labour-hours used for the professional model were less than the budgeted quantity by 0.05 hours per unit.
8. The predetermined allocation rate for variable overhead was 130% of direct labour cost; the total (i.e., flexible budget) variable overhead variance amounted to $16,344 (favourable).
9. Fixed manufacturing overhead was underallocated by $35,527; the actual amount incurred during the quarter was $992,750. The predetermined overhead rate for fixed manufacturing overhead was based on 13,040 labour-hours.

Required:

1. Complete a variance analysis in Excel. You may use the variance tree method or the equation method. Be sure to label each of the variances as favourable (F) or unfavourable (U).
2. Provide a brief (300 word maximum) analysis of the variances that have occurred, and suggest at least two possible reasons why some of the variances happened. Remember that some variances can affect other variances (i.e. materials and labour) so your analysis should be “big picture”.
3. Prepare the standard cost cards for both the professional skate model, and the amateur skate model. Standard cost cards should include the direct materials, direct labour, and variable manufacturing overhead per unit. You should also have the standard quantity/hours per unit, and the standard price/rate per unit, multiplied by each other to get standard cost
4. Using the above information, prepare the static budget for the company in the same format as the performance report (income statement) provided above. Recall that the static budget is based on the planned / original budget sales levels, and is not a flexible budget.

The suggested format in Excel is to have 3 tabs (one for Required #1 and 2 as they are linked, one for Required #3, and one for Required #4).

Hints

• Start with the variance analysis – complete what information you know from above, and determine what you still need to complete the analysis, then attempt to calculate or find it
• The static budget is like a puzzle, you really need to think about what the budgeted numbers would have been – use the information above to figure out the static budget and then solve for the missing pieces
• Remember that gross margin and contribution margin are different

Cheating and plagiarism

This is an individual assignment.  You are to prepare the variance analysis project using Excel. Start your project with a blank Excel spreadsheet. The spreadsheet should not be someone else’s or downloaded from anywhere on the internet. Sharing spreadsheets is considered cheating.

Allowing another student to use or copy your spreadsheet is plagiarism.

ALL instances of cheating or plagiarism will be reported to the Dean’s office and may result in suspension from the Business Program.