If Waltham Motors Division sells 13. 326 units. it will breakeven. But why Waltham incurred net losingss when it sold more than 13. 326 units in May? The unfavourable cost discrepancies ( see answer 2 and 3 ) and Waltham’s high operating purchase were major grounds for its fiscal jobs. Waltham’s runing purchase is 3. 85 times. which indicates that the operating income is really sensitive to alterations in gross revenues.
Answer 2: Entire cost per unit
The budgeted cost per unit is $ 42. 93. and the existent cost per unit is $ 49. 51. When calculating the cost per unit. we include all the cost. including merchandising and disposal costs. The existent cost per unit exceeded the budgeted sum because of the followers: * Waltham sold less units of motors compared to the budgeted measures. Therefore. the existent operating expense per unit exceeded the budget sum due to reduced denominator. * Waltham incurred higher manager labour cost per unit and direct stuff cost per unit compared to the budgeted sums.
Answer 3: Performance study
Waltham should split the unfavourable inactive budget discrepancy for runing income into two parts: a flexible budget discrepancy of $ 20. 356 U and a sales-volume discrepancy of $ 78. 044 U. To derive farther penetration. Waltham should subdivide the flexible budget discrepancy for direct cost inputs into more elaborate discrepancies. Price discrepancy for direct stuffs is $ 4. 200 F. and measure discrepancy for direct stuffs is $ 5. 600 U. Price discrepancy for direct labour is $ 5. 600 U. and measure discrepancy for direct stuffs is $ 16. 400 U.
Answer 4: Summary of discrepancy analysis
The sum-up of discrepancies high spots three chief effects:
* Waltham sold 400 fewer units than budgeted. ensuing in an unfavourable sale volume discrepancy of $ 78. 044. Gross saless declined likely because Waltham did non adapt rapidly to alterations in client penchant and likely because quality jobs developed that led to client dissatisfaction with Waltham’s motors. * Waltham sold units at a higher monetary value than budgeted. ensuing in a favourable selling-price discrepancy of $ 14. 000. * Fabrication costs for the existent end product produced were higher than budgeted – direct stuff by $ 1. 400. direct fabricating labour by $ 22. 000. variable fabricating operating expense by $ 9. 756. and fixed operating expense by $ 1. 200.
To derive farther penetration. we subdivide the flexible budget discrepancy for direct cost inputs into more elaborate discrepancies as followers:
Monetary value discrepancy
* The $ 4. 200 favourable direct stuffs monetary value discrepancy could be because of adept dialogue accomplishments of buying director on direct stuffs. a alteration to a lower-price provider. a lessening in market monetary value of direct stuff. and potentially lower quality stuffs. * The $ 5. 600 unfavourable direct fabrication labour monetary value discrepancy could be because of an addition in market monetary value of direct labour or. hapless dialogue accomplishments of buying director or human resource director on direct labour costs.
* The $ 5. 600 unfavourable direct stuffs efficiency discrepancy and the $ 16. 400 unfavourable direct fabrication labour efficiency discrepancy could be because of unskilled workers. hapless production agenda. or hapless machine care.
We besides subdivide the variable costs overhead discrepancy and fixed costs overhead discrepancy into more elaborate discrepancies as followers:
Variable overhead discrepancy
* The unfavourable $ 9. 756 variable fabricating overhead discrepancy arises likely because of the difference between existent measure and budgeted measure of the cost allotment base. For illustration. workers may be less skilled than expected in utilizing machines and production scheduler may inefficiently schedule occupations ( as evidenced by unfavourable discrepancy for idle clip and clean up clip ) . which consequence in more machine hours used than budgeted. * The unfavourable $ 9. 756 variable fabricating overhead discrepancy could besides be because of the difference between existent cost per unit of cost allotment base and the budgeted cost per unit of cost allotment base. For illustration. existent monetary values of single inputs. such as the monetary value of transportation costs. could be higher than budgeted monetary values of these inputs.
Fixed overhead discrepancy
* The unfavourable $ 1. 200 fixed overhead discrepancy arises because existent fixed overhead costs exceed the budgeted sum. This is likely due to the higher administrative costs. such as a higher than budgeted salary paid to the works director.