Beta Company

Written Analysis on the Case of

BETA COMPANY

In Partial Fulfillment of the Requirements in

Managerial Accounting

(BA 2005)

Critiqued by:

Princess Shayne A. Caterial

Trixy Balingit

Mary Jane Calzada

July 18, 2015

1. Executive Summary

Beta Company is a manufacturing company that produces two products, A and B, wherein both products use materials X and Y. In this case study, for the month of November, both products yield different number of units produced and incurred diverse total purchases for their materials used and sustained an actual hour needed to produce both products.

The company then needed to analyze variances that occurred in order to assess the production’s effectiveness and efficiency in their acquisition and use of production materials and labor rate and efficiencies.

This case study presented computations to support the analysis and interpretation regarding the variances present during the production process.

1. Statement of the Problem

The following are the posted questions that the critiques need to give solutions and justifications:

1. Calculate the material price and usage variances for the month.
2. Calculate the labor rate and efficiency variances for the month.
3. How would your answers to Question 1 and 2 change if you had been told that November’s planned production activity was 4,000 units of A and 4,000 units of B?
4. How would your answers to Question 1 and 2 change if you had been told that November’s sales were 4,000 units of A and 3,500 units of B?

1. Causes of the Problem

Basis for analyzing and interpreting data is needed in order for a company to improve and/or correct deficiencies of their processes and systems. In the case of a manufacturing company such as Beta’s, one tool to analyze and scrutinized production’s effectiveness and efficiency is through employing variance analysis. Hence, presented in this paper is a written case analysis for Beta Company’s production variances.

1. Decision Criteria and Alternative Solutions

The use of variance analysis was employed in this case study.

This tool is applied to financial and operation data that aims to identify and determine the cause of the variance (Cross, 2014).

The difference between the standard costs and the actual costs is known as the variance. Here, it is point out that standard costs are not the same as budgeted costs. The principal difference between them lies in their sopce. Both are concerned with laying down cost limits for controlling. However, budgeted costs impose limits to total cost for an organization and standard costs are attached to products and to individual manufacturing operations (Glautier, 2011, as cited by Berger, 2011).

In lieu to this problem, there are certain advantages and potential problems to consider in using the standard costs for the production.

Advantages of Standard Costs

According to Garrison (2008), standard cost systems have a number of advantages and limitations. To name a few, here are some:

1. Standard costs are a key element in a management by exception approach. If costs conform to the standards, managers can focus on other issues. When costs are significantly outside the standards, managers are alerted that problems may exist that require attention. This approach helps managers focus on important issues.

1.  Standards that are viewed as reasonable by employees can promote economy and efficiency. They provide benchmarks that individuals can use to judge their own performance.

1.  Standard costs can greatly simplify bookkeeping. Instead of recording actual costs for each job, the standard costs for direct materials, direct labor, and overhead can be charged to jobs.

1. Standard costs fit naturally in an integrated system of “responsibility accounting.” The standards establish what costs should be, who should be responsible for them, and whether actual costs are under control.

Potential Problems with the Use of Standard Costs

1. Standard cost variance reports are usually prepared on a monthly basis and often are released days or even weeks after the end of the month. As a consequence, the information in the reports may be so outdated that it is almost useless.

1. If managers are insensitive and use variance reports as a club, morale will suffer. Employees should receive positive reinforcement for work well done.  

1. Computation/Recommended Solution, Implementation and Justification

The following answers the above-listed questions for this case study:

1. Calculate the material price and usage variances for the month.

        Table 1. Materials price and usage variances for products A & B