Mile High Cycles

The following are the tables used to solve the problem.

Budgeted Costs
Frame Assembly
Steel tubing
Paint
Labor
Total frame
Wheel assembly
Parts
Rework parts
Labor
Total wheel

Budgeted
$3,564,000
$27,000
$1,620,000
$5,211,000

Actual
$3,572,100
$28,187
$1,528,050
$5,128,337

Variance
$8,100
$1,187
-$91,950
-$82,663

U
U
F
F

$1,296,000
$0
$70,200
$1,366,200

$1,317,600
$25,000
$74,250
$1,416,850

$21,600
$25,000
$4,050
$50,650

U
U
U
U

($105,000/10,000)*10,800 = $113,400

$3,780,000
$0
$113,400

$3,963,600
$45,000
$116,000

($3,605,000/10,000)*10,800 = $3,893,400

$3,893,400

$4,124,600

$183,60
0
$45,000
$2,600
$231,20
0

$250,000
$100,000
$100,000

$250,000
$100,000
$100,000

$0
$0
$0

($3,300,000/10,000)*10,800 = $3,564,000
($25,000/10,000)*10,800 = $27,000
($1,500,000/10,000)*10,800 = $1,620,000
($4,825,000/10,000)*10,800 = $5,211,000

($1,200,000/10,000)*10,800 = $1,296,000
($65,000/10,000)*10,800 = $70,200
($1,265,000/10,000)*10,800 = $1,366,200

Final assembly
Parts
Rework parts
Labor
Total final assembly
Overhead costs
Rent
Office staff
Depreciation

($3,500,000/10,000)*10,800 = $3,780,000

$250,000
$100,000
$100,000

U
U
U
U

Variable Overhead
Fixed Overhead

[((2/3)*$750,000)/10,000]*10,800 = $540,000
(1/3)*$750,000 = $250,000

$540,000
$250,000

$600,000
$250,000

$60,000
$0

U
-

Total overhead

($250,000+$100,000+$100,000+$540,000+$250,000) = $1,240,000

$1,240,000

$1,300,000

$60,000

Total Annual Costs

($5,211,000+$1,366,200+$3,893,400+$1,240,000) = $11,710,600

$11,710,60
0

$11,969,78
7

$259,18
7

Predetermined rate per unit

FOH Applied
Total FOH Variance
Volume Variance
Spending Variance

Std
Price

($1,200,000/10,000) = $120
(10,800*$120) = $1,296,000
($1,300,000-$1,296,000) = $4,000
($1,296,000-$1,240,000) = $56,000
($1,240,000-$1,300,000) = -$60,000

Act
Price

U
F
U

Std Qty

Act Qty

Usage
Variance

Price Variance

Total
Variance

Frame Assembly
-$162,000.00

$170,100.0
0

$8,100.00

$500.00

$687.50

$1,187.50

100,200

-$117,000.00

$25,050.00

-$91,950.00
-$82,663

F
F

(10,000/10,000)*10,800 = 10,800
(10,000/10,000)*10,800 = 10,800

10,800
10,800

$0.00
$0.00

$21,600.00
$25,000.00

U
U

$21,600.00
$25,000.00

U
U

(5,000/10,000)*10,800 = 5,400

5,500

$2,750.00

$4,050.00
$50,650.00

U
U

Steel tubing

$30.00

$31.50

(110,000/10,000)*10,800 = 118,800

113,400

Paint

$20.00

$20.50

(1,250/10,000)*10,800 = 1,350

1,375

Labor
Total frame

$15.00

$15.25

(100,000/10,000)*10,800 = 108,000

Wheel assembly
Parts
Rework Parts
Labor
Total wheel
Final assembly

Rework Parts = [$25,000/10,800=$2.31]

$120.00
$0.00

$122.00
$2.31

$13.00

$13.50

Rework Parts = [$45,000/10,800=$4.17]

$1,300.00

Parts

$350.00
$0.00

$367.00
$4.17

Labor
$14.00
Total final assembly

$14.50

Rework Parts

(10,000/10,000)*10,800 = 10,800
(10,000/10,000)*10,800 = 10,800

10,800
10,800

(7,500/10,000)*10,800 = 8,100

8,000

$0.00
$0.00

$183,600.0
0
$45,000.00

U
U

$183,600.00
$45,000.00

U
U

-$1,400.00

$4,000.00

$2,600.00
$231,200.00

U
U

1. The biggest unfavorable variance is coming from the final assembly parts. The second biggest unfavorable variances come
from the reworked parts during the wheel and final assembly. I think the variances are mostly coming from the price variances.
As there was a big change in the pricing of parts. The variances also come from reworking since those costs werent included
in the standard estimates.
2. Bob should be concerned with the companys performance. He should pay attention to the pricing of the parts as well as a
better way to increase the efficiency of reworking the parts. He should try to obtain information on why the parts seemed to
have gone much higher than expected and maybe try to find were the inefficiency lies in the rework of parts is located.
3. Per unit variance would be useful since it could help pinpoint which unit is producing the most variance. However, functional
variance helps relate the subdivision which is producing the variances which can guide the firm to the right division that needs
the help. The functional variances could help to break down into unit variances.