(Variance Analysis) Elsie”s Muffins makes two types of muffin that are sold to grocery stores: the standard muffin (which comes in various flavours such as carrot, chocolate chip, bran, and apple spice) and the gourmet muffin (which is injected with homemade jelly and topped with a nut crumble). The direct materials and labour used to make a package of 24 of both the standard and the deluxe brand muffins and their standard costs are shown in the following table:
|
Standard Muffins |
Deluxe Muffin |
|||
|
Quantity |
Cost |
Quantity |
Cost |
|
|
Baking mix |
1 kg |
$2 per kg |
1.1 kg |
$2 per kg |
|
Paper cups |
24 |
$0.005 per cup |
24 |
$0.006 per cup |
|
Jelly and nut crumble |
n/a |
n/a |
350g |
$0.005 per gram |
|
Direct labour |
7 minutes |
$20 per hour |
9 minutes |
$20 per hour |
Variable overhead is assigned to each package based on direct labour dollars at a rate of 40% of direct labour costs. The factory has total fixed overhead costs budgeted at $50,000 for the year, based on a total production volume of 50,000 packages of muffins per year.
During 2012, Elsie”s sold 54,000 packages of muffins: 42,000 standard and 12,000 deluxe. The company used 51,500 kg of baking mix; 1,325,000 paper cups; 3,800 kg of jelly and nut crumble; and 6,800 direct labour hours. Elsie”s spent a total of $100,000 on baking mix; $7500 on paper cups; $22,500 for jelly and nut crumble; and $147,000 on direct labour. For 2012, actual fixed overhead costs were $48,500 and variable overhead costs were $52,000.
- Calculate the materials, labour, variable overhead, and fixed overhead variances.
- Which variances need further investigation?
- Provide a possible explanation for each significant variance.