While many organizational costs can be planned for, the actual results may vary from the initial projections. Assessing how these variances impact the bottom line is an essential task of many managers.

Perfect-Contour, Inc. is a manufacturer of high-quality products designed to help support healthy backs and spines. Their newest product offering is a massage chair. Below is the standard cost structure for the chair:

Standard Cost Sheet	Quantity	Price	Total
Metal tubing (meters)	4	$    3.45	$13.80
Leather (square meters)	3	$    5.00	$15.00
Padding (kilograms)	4	$    3.50	$14.00
Direct labor (hours)	3	$  15.00	$45.00
Total standard cost		$87.80

 

This month, Perfect-Contour manufactured 500 massage chairs. The following costs were incurred:

Actual Costs Incurred (500 Chairs)	Quantity	Cost
Metal tubing (meters)	2100	$7,665
Leather (square meters)	1650	$8,415
Padding (kilograms)	2078	$7,480
Direct labor (hours)	1400	$20,860
Total cost		$44,420

 Adapted from: Zimmerman, J. L. (2014). Accounting for decision making and control (8th ed.).  New York: NY: McGraw-Hill, “Healing Touch”, p. 565.

Suppose you are the senior controller for Perfect-Contour and you plan to perform a variance analysis of the massage chairs manufactured to determine if the standards are being met. Once you have completed the analysis, you plan to show it to the production department manager and ask for an explanation of any variances that you believe should be examined.