Direct-cost and selling price variances. MicroDisk is the ...

[pepyto]

Direct-cost and selling price variances.
 
  MicroDisk is the market leader in the Secure Digital (SD) card industry and sells memory cards for use in portable devices such as mobile phones, tablets, and digital cameras. Its most popular card is the Mini SD, which it sells to OEMs as well as through outlets such as Target and Walmart for an average selling price of 8. MicroDisk has a standard monthly production level of 420,000 Mini SDs in its Taiwan facility. The standard input quantities and prices for direct-cost inputs are as follows:
 
  Phoebe King, the CEO, is disappointed with the results for June 2014, especially in comparison to her expectations based on the standard cost data.
 
  King observes that despite the significant increase in the output of Mini SDs in June, the product's contribution to the company's profitability has been lower than expected. She gathers the following information to help analyze the situation:
 
  Calculate the following variances. Comment on the variances and provide potential reasons why they might have arisen, with particular attention to the variances that may be related to one another:
 
  Required:
  1. Selling-price variance
  2. Direct materials price variance, for each category of materials
  3. Direct materials efficiency variance, for each category of materials
  4. Direct manufacturing labor price variance, for setup and fabrication
  5. Direct manufacturing labor efficiency variance, for setup and fabrication.

Question 2

Financial statements prepared during the fiscal year for periods of less than twelve months are called
 a. temporary statements.
   b. internal statements.
   c. interim statements.
   d. nominal statements.
   e. external statements.

[jjorrostieta]

Answer to Question 1

1. Computing unit selling prices and unit costs of inputs:
Actual selling price = 3,626,700  462,000
= 7.85
Budgeting selling price = 3,360,000  420,000
= 8.00
Selling-pricevariance = Actualselling price  Budgetedselling price  Actualunits sold

= (7.85/unit  8.00/unit)  462,000 units
= 69,300 U

2., 3., and 4.

The actual and budgeted unit costs are:

Actual Budgeted
Direct materials
Specialty polymer
Connector pins
Wi-Fi transreceiver
0.05 (415,000  8,300,000)
0.11 (550,000  5,000,000)
0.50 (235,000  470,000)
0.05
0.10
0.50
Direct manuf. labor
Setup
Fabrication
24.00 (182,000  455,000  60)
31.00 (446,400  864,000  60)
24.00
30.00

The actual output achieved is 462,000 Mini SDs.

The direct cost price and efficiency variances are:

Actual Costs
Incurred
(Actual Input Qty.
 Actual Price)
(1) Price
Variance
(2) = (1)  (3) Actual
Input Qty.
 Budgeted Price
(3)
Efficiency
Variance
(4) = (3)  (5) Flex. Budget (Budgeted Input
Qty. Allowed for
Actual Output
 Budgeted Price)
(5)
Direct materials
Specialty polymer  415,000  0  415,000a 22,300 U  392,700f
Connector pins 550,000 50,000 U 500,000b 38,000 U 462,000g
Wi-Fi transreceiver 235,000 0 235,000c 4,000 U 231,000h
1,200,000 50,000 U 1,150,000 64,300 U 1,085,700

Direct manuf. labor costs
Setup 182,000  0 182,000d  2,800 F 184,800i
Fabrication 446,400 14,400 U 432,000e 30,000 F 462,000j
628,400  14,400 U 614,000 32,800 F 646,800

a 0.05  8,300,000 = 415,000 f 0.05  17  462,000 = 392,700
b 0.10  5,000,000 = 500,000 g 0.10  10  462,000 = 462,000
c 0.50  470,000 = 235,000 h 0.50  1  462,000 = 231,000
d 24.00/hr.  (455,000 min.  60 min./hr.) = 182,000 i 24.00  (462,000  60) = 184,800
e 30.00/hr.  (864,000 min.  60 min./hr.) = 432,000 j 30.00  (462,000  30) = 462,000

Comments on the variances include:

 Selling price variance. This may arise from a proactive decision to reduce price to expand market share or from a reaction to a price reduction by a competitor. It could also arise from unplanned price discounting by salespeople.

 Material price variance. The 0.01 increase in the price per connector pin could arise from uncontrollable market factors or from poor contract negotiations by MicroDisk.

 Material efficiency variance. For all three material inputs, usage is greater than budgeted. Possible reasons include lower-quality inputs, use of lower-quality workers (although this is not reflected in the labor price variances), and the setup and fabrication equipment not being maintained in a fully operational mode. The higher price paid for connector pins (and perhaps higher quality of pins) did not reduce the number of connector pins used to produce actual output.

 Labor efficiency variance. There is a small favorable efficiency variance for setup labor and a larger one for fabrication, which could both result from workers eliminating non-value-added steps in production.

 Labor price variance. There is an unfavorable price variance for fabrication as a result of the 1 higher wage per hour paid for that labor. The higher labor quality could also explain the significant efficiency variance for fabrication labor.

Answer to Question 2

c

[pepyto]

Thank you

[jjorrostieta]

Happy to help you