I attached below the guide line of this final project II. This should be at least 4 pages and citation included.I also attached other three parts of the project I which would be helpful to done this p

Budget Variance Analysis

Variance analysis is typically performed for the production cost of manufacturing goods. On the other hand, the variance is the difference between standards prices and quantities and actual prices and the quantities. Price variances can be computed for each of the three variable cost elements, for example, direct material, direct labor, and variable manufacturing overhead. In this case price variance will be applied only to direct material and direct labor. The table below shows the computation of direct material variances and directs labor variances.

Total direct material variances comprise of two components. Those components include direct material prices variances and direct material quantity variances. The procedure of computing for direct material variances entails multiplying (Actual Quality (AQ) with standard price prices (SP) - Actual Price (AP)). Direct materials price variance = (SP – AP) x AQ. In this case, Standard Price (SP) was = $7.75

Actual Price (AP) was = $7.75

Actual quantity was = 31,000

Direct material price Variance’s was = 31,000 × ($7.75 - $7.75) = 0

The variance is favorable because standard price and actual price are equal. The second equation was explaining material efficiency or quantity efficiency. The procedure of computing for direct material efficiency or quantity entails multiplying (Standard Price (SP) × (Standard price (SP) - Actual Quantity (AQ)). Direct materials price variance = (SQ – AQ) x SP. In this case, Standard Price (SP) was = $7.75

Actual Quantity (AQ) was = 31,000

Standard Quantity (SQ) was =30,000

Direct materials quantity variance = $7.75 x (30,000 – 31,000) =$(7,750) which was considered to be unfavorable. This is because the material was used than needed or as budgeted for the job. This kind of problem is influenced by miscalculation of accounting material. The third part of direct material includes total material variances. In order to calculate total direct material variance, the following procedure is followed. (Standard Price (SP) × Standard Quantity (AQ)) - Actual (Quantity × Actual Price (AP). In this case, Standard Price (SP) and actual price was = $7.75

Actual Quantity (AQ) was = 31,000

Standard Quantity (SQ) was =30,000

Total direct materials variance = (SP x SQ) – (AP x AQ)

($7.75 × 30,000 – ($7.75 × 31,000) =$(7,750) which is considered to be unfavorable because the cost of actual material exceeds the cost budget for the material.

Therefore, the firm was inefficiency on how they utilized the raw material. Direct labor cost involves is computed in the same formula: Direct labor price variance = (SR – AR) x AH for prices variance’s, Direct labor quantity variance = SR x (SH – AH) for efficiency variance and lastly Total direct labor variance = (SR x SH) – (AR x AH). The above table shows there was favorable price variance of $33,000. A favorable labor efficiency variance indicates better productivity of direct labor during a period. The direct labor had variances of $ (48,000) and it was considered to be unfavorable. This is because labor efficiency has worsened because the organization failed to utilize labor effectively.

Lastly, the direct material has unfavorable variances of $(15,000) which indicates that total actual cost is higher than the total standard cost; the variance is unfavorable since the company paid more than what is expected to pay. In order to handle the situation, the company should check its budgeting procedures to ensure there is a no error. The budgeting tool might have made some errors while evaluating the needed material. Beside, variances in labor should be investigated because it seems that some people were not serious about the way they were supposed to do that and that why the company paid more for labor. The rate of material wastage should be investigated because it leads to an increase in actual material needed for production.

References:

Jackson, S., Sawyers, R., & Jenkins, J. G. (2008). Managerial accounting: A focus on ethical decision making. Mason, OH: Thomson/South-Western.

Warren, C. S., Reeve, J. M., & Duchac, J. E. (2018). Managerial accounting.

Needles, B. E., Powers, M., & Crosson, S. V. (2010). Financial and managerial accounting. Mason, OH: South-Western Cengage Learning.