Help with variance analysis:

The partner in charge of the engagement believes that an analysis of the company’s production variances will help the board to understand the root causes of the decline in profitability. The following information has been obtained from the production records for the most popular product, the snack cake. As a first step, the partner has asked you to calculate the flexible budget rate and efficiency and price variances for materials and labour for the snack cake. He believes that this analysis is a good starting point, as the other products are likely to show similar variances.

Raw ingredients (standard recipe):

10.2 standard units of input per unit of output (batch of 1,000).

$18.50 standard cost per unit of input

2.1 labour hours (standard units of input per unit of output (batch of 1,000)

$22.00 standard cost per unit of output for labour hours

Actual results:

Actual output (units) 46,400

Actual quantity of raw ingredients used 479,405

Actual cost of raw ingredients $8,744,344

Actual labour hours 111,360

Actual labour cost $2,422,080

Also, to help the board better understand the company’s performance, the partner has asked you to comment on the likely causes of any variances identified.