Unit5 Written Assignment

School: University of the People - Course: MANAGERIAL BUS 5110 - Subject: Accounting

Written Assignment Unit 5 Performing Variance Analysis for Papaya Partners BUS 5110: Managerial Accounting Instructor: Jamal Boubetana

Running Head: Standard Costing and Variance Analysis2 Standard Cost and Variance Analysis Synopsys Standard costs are costs that management expects to incur to provide a good or service, they serve as the standard by which performance will be evaluated (Walther, L. M. & Skousen, C.J, 2009). Variance analysis is the study of deviations of actual behavior versus planned behavior in budgeting or management accounting. The difference between actual and planned behavior indicates about business performance (The Economic Times, n.d). In this assignment, we shall compare and analyze thepapaya partners'actual cost information with budgeted cost, determine the individual standard cost, perform variance analysis and recommend corrective measures to management to reduce the variance if any. Determine Standard Cost Before determining the individual standard cost we need to find the total number of units (cartons) sold. Considering that the company had budgeted sales of $500,000 and selling each 10-pound carton papaya for 25$. Total units sold(20,000 units) = Budgeted sales ($500,000) / Cost per unit ($25). Budgeted Cost Cost of fruit @10 Pounds per carton$ 200,000 Cost of packaging @ 1 pound per carton$ 10,000 Labor costs @ .5 hours per carton$ 90,000 Total Cost$ 300,000 Standard CostPer Unit Calculation Formula Cost of fruit @10 Pounds per unit at $1 per pound$ 10 200,000 pound/ $200,000*10 pound per carton Cost of packaging @ 0.50 pound per unit$ 0.50$10,000/ 200,000 pound *10 pound per carton Labor costs @ .5 hours per carton$ 4.5 $90,000/ 200,000 pound *10 pound per carton Total Cost$ 15 Standard cost per unit (carton) The total labor hours to produce 20,000 units = 0.5 hours * 20,000 units = 10,000 hours. Determine Actual Cost Running Head: Standard Costing and Variance Analysis3 Since the company achieved $500,000 of sales as planned in budgeted sales, the quantity of cartons sold is 20,000 units. Standard CostPer Unit Calculation Formula Cost of fruit @10 Pounds per unit at $1 per pound $ 12.21244,200 pound/ $200,000*10 pound per carton Cost of packaging @ 0.55 pound per unit$ 0.55$11,000/ 200,000 pound *10 pound per carton Labor costs @ .75 hours per carton $ 7.50$150,000/ 200,000 pound *10 pound per carton Total Cost $ 20.26Actual cost per unit (carton) The total labor hours to produce 20,000 units = 0.75 hours * 20,000 units = 15,000 hours. Variance Calculation Direct material price variance = (actual quanitty*actual price) - (actual quanitty*standard price) $44,200 = (20,000 units * $12.21) - (20,000 units * $10) Direct material usage variance = (standard price*actual qty) - (standard price*standard qty) $0 = ($10 * 20,000 units) - ($10 * 20,000 units), In the above scenario, both the actual quantity and standard quantity is 20,000 units. Direct labor rate variance = (actual hour *actual rate) - (actualhour*standard rate) $45,000= (15,000 * $7.50) - (15,000 * $4.5) Direct labor efficiency variance = (standard rate*actual time) - (standard rate*standard time) $22,500 = ($4.5 * 15,000) - ($4.5 * 10,000)