Essay About Cost Variances And Final Assembly

Mile High Case Write Up
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Michelle AvilesMile High Case Write UpApril 15, 20152.   2004 Flexible Budget with Flexible/Actual VariancesCost PartsFlexible BudgetActual CostTotalVariance EfficiencyPriceFrameSteel Tubing3,564,0003,572,100-8,100162,000-170,100Paint27,00028,188-1,811-500-688Labor1,620,0001,528,05091,950117,000-25,050Total5,211,0005,128,33882,663278,500-195,838WheelParts1,296,0001,317,600-21600-21600Rework Parts25000-25,000-25,000Labor70,20074,250-4,050-1,300-2,750Total 1,366,2001,416,850-50,650-1,300-49,350FinalParts3,780,0003,963,600-183,600-183,600Rework Parts45,000-45,000-45,000Labor113,400116,000-2,6001,400-4000Total3,893,4004,124,600-231,2001,400-232,6003.Cost Variances for Frame /Wheel/ Final Assembly & OverheadFRAMETotal VariancePriceEfficiencySteel Tubing-8,100-170,100162,000Paint-1,188-688-500Labor91,950-25,050117,000Total82,663-195,838278,500WHEELTotal VariancePrice EfficiencyParts-21,600-2,16000Rework Parts-25,000-25,0000Labor-4,050-2,750-1,300Total-50,650-49,350-1,3001FinalTotal VariancePriceEfficiencyParts-183,600-183,6000Reworks Parts-45,000-45,0000Labor-2,600-4,0001,400Total-231,200-232,6001,400OVERHEADTotal VarianceSpending VarianceOH Volume VarianceTotal4,00060,00056,0004.         Bob Moyer should not be concerned about Mile High Cycles performance. The company increased their profit despite their actual cost being higher than what was budgeted. The total cost of production was budgeted for $10,895,000 and $11,969,787 was the actual cost which is 9.89% more. The company is moving in a positive direction. However, the variances that did occur were somewhat significant and should be addressed moving forward. The most significant variance was the final assembly cost. The labor variance was also high. The possible cause for this variance would be the difference between the actual cost of the materials and the amount on the flexible budget. Bob needs to focus on reducing the cost of materials and labor. First Bob should meet with suppliers to try and come to some agreement on a locked rate. He could also shop around to different suppliers to find a better or reduced rate. The final assembly efficiency variance should also be addressed. Final assembly has a higher variance rate compared to frame assembly and wheel assembly. Bob should meet with management about more training opportunities for current employees. He could also suggest hiring more skilled employees in the future if needed.