A guide to assignment on case study by Papaya partners to calculate the budget variance. The calculations include finding cost per unit and variance for material price & usage, labor rate and labor efficiency. It's a total of 6 pages including detailed calculations, conclusion, and recommendations.
Papaya Partners is a distributor of papayas. They purchase papayas from individual growers and
package them in 10-pound cartons for delivery to their various customers, generally
supermarkets. Last month, they budgeted to sell $500,000 worth of cartons at a price of $25
each. Actual sales met a budget of $500,000 at $25 per carton.
Management has received cost information based on actual performance and needs to understand
the drivers of the overall variance from the budget. They have asked you, as an analyst in their
management accounting department, to calculate and explain the variances. The following data
has been provided:
Budget
Cost of fruit @ 10 pounds per carton $ 200,000
Cost of packaging @ 1 pound per carton $ 10,000
Labor costs @ .5 hours per carton $ 90,000
Total Cost $ 300,000
Actual
Cost of fruit @ 10 pounds per carton $ 244,200
Cost of packaging @ .55 pound per carton $ 11,000
Labor costs @ .75 hourse per carton $ 150,000
, Budget
Total Cost $ 405,200
Unfavorable variance $105,200.00
Specifically, management needs to know the:
Standard cost per unit (carton)
Actual cost per unit
Direct materials price variances
Direct materials usage variances
Direct labor rate variance
Direct labor efficiency variance
In addition, they would like to understand how the variances are calculated and what caused
them. They would also like a recommendation on what might be done to improve the variances.
For this assignment, compute all required amounts and explain how the computations were
performed. Describe whom you would work with to determine the causes of the variances and
hypothesize on what caused the variances. Based on your analysis, recommend actions that
management could take to improve the variances.
Superior papers will:
Perform all per unit calculations correctly.
Articulate how the calculations were performed.
Assess the variances computed and evaluate the operational results (i.e., is performance
better or worse than budgeted?).
Explain with whom you would work to identify the root causes of the variances.
Propose well-thought-out causes for each variance.
Conclude on which variances require management’s attention and recommend courses of
action.
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