Investigating Variances. Quality Tables, Inc., produces high-end coffee tables. Standard cost information for each table is presented as follows.
Quality Tables produced and sold 2,000 tables for the year and encountered the following production variances:
Company policy is to investigate all unfavorable variances above 10 percent of the flexible budget amount for direct materials, direct labor, and variable overhead.
a. Identify the variances that should be investigated according to company policy. Show calculations to support your answer.
b. What potential weakness exists in the company’s current policy?
Variance Analysis with Activity-Based Costing. Assume Mammoth Company uses activity-based costing to allocate variable manufacturing overhead costs to products. The company identified three activities with the following information for last quarter.
Required: Assume Mammoth Company produced 40,000 units last quarter. Prepare a variance analysis using the format shown in Figure 10.11 “Variable Overhead Variance Analysis for Jerry’s Ice Cream Using ActivityBased Costing”. Clearly label each variance as favorable or unfavorable.
Figure 10.11 Variable Overhead Variance Analysis for Jerry’s Ice Cream Using Activity-Based Costing