W5 Acct DQ, AssgnP1 and p2

Running head: MEMO 1

MEMO 2

Memorandum

Walden University

Memo

TO: Production Department Manager

FROM:

CC:

DATE: 2020

SUBJECT: Variance Price and Cost Analysis

The objective of this memo is to investigate cost efficiencies and inefficiencies during the production of massage chairs through variance analysis. According to Dili (2017), variance analysis helps in promoting and maintaining control over a business. As a result, I applied countless variance analysis techniques to understand better the budget and actual amounts of the massage chairs.

During the analysis in examining the cost of producing 500 chairs, we scheduled the price for a 6-meter chair to cost around 3 dollars, but what was paid was 3.05 dollars a chair. Besides, there was unfavorable variance amounting to 155 dollars for metal and 22 dollars for leather. We budgeted that for two square meter chairs to be at 7 dollars, but what was paid was 7.02 dollars. The estimated amount of padding was set at 4 dollars for every 3 kilograms. What was paid for the filling was 4.10 dollars. The padding for the massage chairs was found to have an unfavorable variance that amounted to 160 dollars, while that of direct labor was 270 dollars. I then proceeded to identify the cost of labor. Initially, we had projected that the cost of labor would cost an average price of 15 dollars, however, the cost of work increased by 15 cents; as a result, the amount paid was 15.15 dollars. According to Zimmerman (2014), examining such differences between the actual and budgeted costs helps in making decisions for corrective action.

In the analysis, the labor efficiency variance was $ 40,950 implying that most of the materials used were of high quality and the laborers hired were highly skilled. As a result, the wage rate variance stood at $4,090.50 which was deemed unfavorable. Lastly, the analysis showed that there was an increase in prices during the supply of the materials and also the mishandling of materials. To reduce the rise in pricing, I recommend that the department reduces the consumption rate and negotiate pricing with suppliers

References

Dilli. (2017). Difference Between Actual Cost and Standard Cost | Compare the Difference Between Similar Terms. Retrieved 9 February 2020, from https://www.differencebetween.com/difference-between-actual-cost-and-vs-standard-cost/

Zimmerman, J. L. (2014). Accounting for decision making and control (8th ed.). New York, NY: McGraw-Hill