ACCOUNTING -Application: Calculating Variances and Analyzing the Results
Application: Calculating Variances and Analyzing the ResultsWhile 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.Spine Line is a manufacturer of high-quality products designed to help support healthy spines. Their newest product offering is a massage chart. Below is the standard cost structure for the chair:Standard Cost Sheet: Massage ChairMetal tubing6 meters @ $3$18.00Leather2 square meters @ $7$14.00Padding3 kilograms @$4$12.00Direct labor4 hours @ $15$60.00Total standard cost$104.00This month, Spine Line manufactured 500 massage chairs. The following costs were incurred:Actual Costs Incurred for the Month: Massage ChairMetal tubing3,100 meters$9,455Leather1,100 square meters$7,722Padding1,600 kilograms$6,560Direct Labor1,800 hours$27,270Total cost$51,007Adapted from: Zimmerman, J. L. (2014). Accounting for decision making and control (8th ed.). New York: NY: McGraw-Hill, âHealing Touchâ, p. 565.Suppose you are the senior controller for Spine Line 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.The Assignment:Part 1: Calculate all materials and labor variances in a spreadsheet by using a program like Excel. Be sure to include price, quantity, wage rate, and labor efficiency variances.Part 2: Prepare a memo to your subordinate, using a program like Word.Summarize and analyze the actual costs in relation to the standard costs incurred for the month.Ask for clarification of any variances that need to be investigated.Be sure to include whether alternatives exist for the future of the organization and explain how the results of the variance analysis might influence those alternatives.