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    Budgeting and Manufacturing Variances

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    Question #1
    Evaluate the following statements concerning variance analysis. Be sure to provide specific examples to justify your evaluations.
    a) When evaluating variances, it is best for managers and others to consider one variance at a time rather than groups of variances together.
    b) "Favorable" variances represent good performance and "unfavorable" variances represent bad performance.

    Question #2
    Describe the strengths and weaknesses of the three general types of budgeting processes we discussed in chat 3. As part of your description, you should provide examples of the strengths and weaknesses.

    Three types of budgeting processes are: -Authoritative budgeting
    - Participative budgeting
    -Consultative budgeting
    Question #3
    Expected production (units) 15,000
    Standard DML hours per unit 7
    Standard DML rate per hour $26
    Standard pounds of DM usage per unit 3
    Standard DM price per pound $14

    Units produced 16,000
    Pounds of DM purchased 53,000
    Total cost of DM purchased $689,000
    Pounds of DM used 50,000
    DML hours worked 106,000
    Total cost of DML $2,968,000

    a) Calculate the following variances:
    Direct manufacturing labor rate variance
    Direct manufacturing labor usage variance
    Direct materials price variance (how we did it in the chat session)
    Direct materials usage variance

    b) Explain what each of the calculated variances imply about the firm's operations. Be specific!
    Direct manufacturing labor rate variance
    Direct manufacturing labor usage variance
    Direct materials price variance
    Direct materials usage variance

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    Solution Preview

    1. a. Do not agree....viewing all variances at once could answer questions for variances that would appear out of line if viewed individually. Evaluating one at a time is time wasted.

    b. As a general rule, yes. Even though a variance is 'favorable' it still may be less than projected or less than needed for controlling costs. The same is true for ...

    Solution Summary

    This solution includes the calculation of manufacturing variances and the determination of favorable and unfavorable variances for labor and materials. It also describes three different methods of budgeting with benefits and problems with each. Calculations are provided in Excel.