• Author / Uploaded
• Ammar Hassan

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Mile High Cycles

The following are the tables used to solve the problem. Budgeted Costs Frame Assembly Steel tubing Paint Labor Total frame Wheel assembly Parts Rework parts Labor Total wheel

Budgeted $3,564,000 $27,000 $1,620,000 $5,211,000

Actual $3,572,100 $28,187 $1,528,050 $5,128,337

Variance $8,100 $1,187 -$91,950 -$82,663

U U F F

$1,296,000 $0 $70,200 $1,366,200

$1,317,600 $25,000 $74,250 $1,416,850

$21,600 $25,000 $4,050 $50,650

U U U U

($105,000/10,000)*10,800 = $113,400

$3,780,000 $0 $113,400

$3,963,600 $45,000 $116,000

($3,605,000/10,000)*10,800 = $3,893,400

$3,893,400

$4,124,600

$183,60 0 $45,000 $2,600 $231,20 0

$250,000 $100,000 $100,000

$250,000 $100,000 $100,000

$0 $0 $0

($3,300,000/10,000)*10,800 = $3,564,000 ($25,000/10,000)*10,800 = $27,000 ($1,500,000/10,000)*10,800 = $1,620,000 ($4,825,000/10,000)*10,800 = $5,211,000

($1,200,000/10,000)*10,800 = $1,296,000 ($65,000/10,000)*10,800 = $70,200 ($1,265,000/10,000)*10,800 = $1,366,200

Final assembly Parts Rework parts Labor Total final assembly Overhead costs Rent Office staff Depreciation

($3,500,000/10,000)*10,800 = $3,780,000

$250,000 $100,000 $100,000

U U U U

-

Variable Overhead Fixed Overhead

[((2/3)*$750,000)/10,000]*10,800 = $540,000 (1/3)*$750,000 = $250,000

$540,000 $250,000

$600,000 $250,000

$60,000 $0

U -

Total overhead

($250,000+$100,000+$100,000+$540,000+$250,000) = $1,240,000

$1,240,000

$1,300,000

$60,000

U

Total Annual Costs

($5,211,000+$1,366,200+$3,893,400+$1,240,000) = $11,710,600

$11,710,60 0

$11,969,78 7

$259,18 7

U

Predetermined rate per unit FOH Applied Total FOH Variance Volume Variance Spending Variance

Std Price

($1,200,000/10,000) = $120 (10,800*$120) = $1,296,000 ($1,300,000-$1,296,000) = $4,000 ($1,296,000-$1,240,000) = $56,000 ($1,240,000-$1,300,000) = -$60,000

Act Price

U F U

Std Qty

Act Qty

Usage Variance

Price Variance

Total Variance

Frame Assembly -$162,000.00

F

$170,100.0 0

U

$8,100.00

U

$500.00

U

$687.50

U

$1,187.50

U

100,200

-$117,000.00

F

$25,050.00

U

-$91,950.00 -$82,663

F F

(10,000/10,000)*10,800 = 10,800 (10,000/10,000)*10,800 = 10,800

10,800 10,800

$0.00 $0.00

-

$21,600.00 $25,000.00

U U

$21,600.00 $25,000.00

U U

(5,000/10,000)*10,800 = 5,400

5,500

U

$2,750.00

U

$4,050.00 $50,650.00

U U

Steel tubing

$30.00

$31.50

(110,000/10,000)*10,800 = 118,800

113,400

Paint

$20.00

$20.50

(1,250/10,000)*10,800 = 1,350

1,375

Labor Total frame

$15.00

$15.25

(100,000/10,000)*10,800 = 108,000

Wheel assembly Parts Rework Parts Labor Total wheel Final assembly

Rework Parts = [$25,000/10,800=$2.31] $120.00 $0.00

$122.00 $2.31

$13.00

$13.50

Rework Parts = [$45,000/10,800=$4.17]

$1,300.00

Parts

$350.00 $0.00

$367.00 $4.17

Labor $14.00 Total final assembly

$14.50

Rework Parts

(10,000/10,000)*10,800 = 10,800 (10,000/10,000)*10,800 = 10,800

10,800 10,800

(7,500/10,000)*10,800 = 8,100

8,000

$0.00 $0.00

-

$183,600.0 0 $45,000.00

U U

$183,600.00 $45,000.00

U U

-$1,400.00

F

$4,000.00

U

$2,600.00 $231,200.00

U U

1. The biggest unfavorable variance is coming from the final assembly parts. The second biggest unfavorable variances come from the reworked parts during the wheel and final assembly. I think the variances are mostly coming from the price variances. As there was a big change in the pricing of parts. The variances also come from reworking since those costs weren’t included in the standard estimates. 2. Bob should be concerned with the company’s performance. He should pay attention to the pricing of the parts as well as a better way to increase the efficiency of reworking the parts. He should try to obtain information on why the parts seemed to have gone much higher than expected and maybe try to find were the inefficiency lies in the rework of parts is located. 3. Per unit variance would be useful since it could help pinpoint which unit is producing the most variance. However, functional variance helps relate the subdivision which is producing the variances which can guide the firm to the right division that needs the help. The functional variances could help to break down into unit variances.