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Unit
Cost/Unit
125000
150000
175000
Laundry Labor
0.072
9000
10800
12600
Supplies
0.009
1125
1350
1575
Water
0.014
1750
2100
2450
Maintenance
0.011
1375
1650
1925
Equipment
Depreciation
1250
1250
1250
1250
Salary
3125
3125
3125
3125
Allocated Admin
Costs
4000
4000
4000
4000
21625
24275
26925
Fixed Cost
Total
The management should separate the variable cost and the fixed cost. The
difference happened in the budget and the actual happens because of the changes
of the variable cost.
If they separate the variable and the fixed cost, they will
In conclusion, the management will know how much the changes of cost, which
happens because of the changing of the volume, so they can anticipate and calculate
the budget cost, so there will be no more over budget cost.
3. Compute the appropriate labor variances. What do they tell you?
Actual Hours
per Pounds
0.47
Standard Hours
per Pounds
0.48
Step 1
Actual Hours
= total pounds x actual hours
per pounds
= 156,600 x 0.47
= 73,602
Step 2
Actual Cost
= actual hours x actual rate
= 73,602 x 10.2
= 750,740.4
Actual Rate
per Pounds
$ 10.2
Standard Rate
per Pounds
$9
Step 3
Standard Cost of Actual
Hours
= actual hours x standard rate
= 73,602 x 9
= 662,418
Step 4
Labor Rate Variance
= actual cost standard cost of
actual hours
= 750,740.4 662,418
= 88,322.4
The Labor Variance indicates that the actual cost is higher than the standard
cost. This means the budget calculation less precise. It should have considered
the other factors, both internal and external.
4. What should Mr. Donaldson tell the administrator about his budget
variances?
First they are doing Variance Analysis, it seen than the gap between the actual
number and the baseline cost. More labor hours would create an unfavorable labor
efficiency variance, which could decrease your expected profit and yes, adverse
variance will reduce the business profit. There is variance in his budget because
there are changes of the quantity and also price of the supplies. He estimates that
the price will remain the same without consider the inflation and any other economic
condition. The other reason why there is variance in his budgeting, because he
wrongly estimate how long it takes to serve one customer. The estimation time is
shorter than the actual time. This makes the increase of the cost because of the
longer time needed to finish the job. Not only the time, but also the number of
customer who came to the shelter is more than estimated. This also made the
variance in his budgeting.
REFERENCES
http://smallbusiness.chron.com/budget-variance-analysis-60250.html,
accessed May 5th 2015.
http://catalog.flatworldknowledge.com/bookhub/reader/4402?
e=heisinger_1.0-ch10_s05, accessed May 5th 2015.