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Domingos Analysis

The document analyzes standard costs, variances, and performance at an organization. [1] Standard costs are benchmarks that represent the expected future cost of a product or process, and allow managers to compare actual costs to standards. Variances show the difference between actual and standard costs and provide information about production control and performance. [2] Large variances could indicate the system is out of control or faulty assumptions, while small variances are likely not worth further investigation. [3] The organization had unfavorable material quantity variances but overall favorable variances, indicating higher quality materials and more efficient labor despite higher costs.

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nysant
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18 views

Domingos Analysis

The document analyzes standard costs, variances, and performance at an organization. [1] Standard costs are benchmarks that represent the expected future cost of a product or process, and allow managers to compare actual costs to standards. Variances show the difference between actual and standard costs and provide information about production control and performance. [2] Large variances could indicate the system is out of control or faulty assumptions, while small variances are likely not worth further investigation. [3] The organization had unfavorable material quantity variances but overall favorable variances, indicating higher quality materials and more efficient labor despite higher costs.

Uploaded by

nysant
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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ANALYSIS & RECOMMENDATION – GROUP-C

Standard costs are benchmarks. They represent the expected or desired future cost of a product,
process or component. Once standard cost are set managers can judge performance by comparing
actual operating results against the standards. The amount by which actual and the standard cost differ
is the standard cost variance. Variance provides useful informations for senior management in judging
whether the production system is in control or not. Variance also provides information for performance
evaluation.

Standard Cost – Standard cost is the expected cost that is reasonably required to achieve a given
objective under specific condition. A standard cost is the product of standard quantity or usage and a
standard price. Standard prices are usually forecasted at the beginning of the year.

We can judge the performance of an organization by comparing the variance between standard and
actual cost.These variance can be either large variances o small variances which can be either favourable
or unvabourable.

Large variances can mean the system is out of control.Large variance can indicate various faulty
assumptions were used to develop the standard or direct labour did not perform at the level assumed or
it might be the case of over assumption or a level that can not be attained.

Small variances (favourable/unfavourable)are probably not worth senior management’s time to


investigate.

Here in this case we are measuring the quantity of material variance.The material quantity variance is
the diference between actual and standard quantity*standard price.It measures the inefficient or
efficient use of material.The quantity variance is reported to the manager responsible for the efficient
use of materials and the performance measure of this manager.

Here we can see that the quantity variance being positive which are being
10,000.00,22,000.00,40,000.00 for PANTELLA,CORONA,CHURCHILL respectively.Thus we can see that
the quantity variance are unfavourable.An unfavourable variance indicates inefficient use of materials.

Inspite of the quantity variance,which represents the difference between what was used and what
should have been used,the material variance in total were 72,000 which is unfavourable.This was due to
an unfavourable price variance which is 1,05,000.00.Thus It appears that high quality materials were
purchased because fewer than expected units of materials were needed to produce the final
product.This seems to be reinforced by the labor variance. The wage rate was slightly higher than the
usual pay which is in govt.sector labour of the same industry use to get $2.50 but Domingo cigar is
paying $3 to the labours,causing a favourble wage variance of $ (8,750.00).The more highly paid
employees,coupled with the better than the standard materials caused a favourable labour efficiency
variance of $(7,750.00).This proves that the workforce was much more efficient in producing the final
output.
Eventhough they were using higher quality direct materials and higher paid employees.Thus they are
doing good business.

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