PART 2
4. # 4. ABC
Using ABC information from problem # 3, if costs were allocated using call length rather than numbers of calls to increase profits on the more complex Specialty Products, managers may be motivated to:
- Increase the length of calls
- Increase the number of calls
- Decrease the length of calls
- Decrease sales revenues
5. # Variance Analysis
Apple Valley Orchards, Inc (AVO), developed standard costs for direct material and direct labor. in 2008, AVO estimated the following standard costs for one of their most well loved products , the AVO classic Grandma’s large apple pie which had a brown sugar coating on the top of the crust as well as including cranberry and mince ingredients in addition to the apples .
| Budgeted quantity | Budgeted price | |
| Direct materials | 1.5 pounds | $ 7.25 per pound |
| Direct labor | 0.25 | $ 14. 00 per hour |
During September AVO produced and sold 1,200 pies using 1,875 pounds of direct materials at an average cost per pound of $ 7.00 and 280 direct labor hours at an average wage of $ 14.25 per hour. September’s direct material price variance is:
- $ 468.75 favourable
- $ 468.75 unfavourable
- $ 75.00 favourable
- None of the above.
6. Variance Analysis
Using the information in problem # 4, During September AVO produced and sold 1,200 pies using 1,875 pounds of direct materials at an average cost per pound of $ 7.00, with an unfavourable material efficiency variance of $ 543.75. This variance could be caused by:
- Paid employees at a higher than expected wage rate
- Paying at a higher price for apples
- Buying better quality apples
- Higher levels of spoiled apples
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