calculate the price variances (price variance and wage rate variance) and quantity variances (quantity variance and labor efficiency variance) for each material and direct labor.
For this Assignment, you will continue in your role as consultant to the Better Chair Company. Last week, you completed and submitted a report on types of costs and their implications for decision making. This week, the focus of your report will be the use of variance analysis and transfer pricing methods in making effective managerial decisions.
In addition to the requirements that follow, be sure to incorporate references to appropriate academic sources, such as those found in this week’s Learning Resources or those in the Walden Library.
To prepare for this Assignment:
· Download the Week 4 Part 1 Assignment Template.
· Download the Week 4 Part 2 Assignment Template.
· Your Instructor will provide part of the data to complete the calculations for this week’s Assignment. There will be two tabs in this document. The first tab will correspond to the “Variance Analysis” part of this Assignment and the second tab will correspond to the “Transfer Pricing” part of this Assignment. To access that information, refer to Doc Sharing:
Submit your completed business report and accompanying Excel file. Your report should be 3–4 pages in length (excluding title page and references) and should address the following:
Variance Analysis
The first area you have been asked to address for the management team in this report is to help them understand why the actual costs for the new chair are not aligning with the determined standard costs. The company has set up standard costs for labor and each component of the new chair. It now has the actual costs for the previous month’s production run. You are asked to determine which costs are meeting the standards and which are not, to analyze the probable cause of the variances, and to provide a recommendation for moving forward. To determine this, you will conduct a variance analysis. In Doc Sharing, your Instructor will provide you with standard and actual costs to use for this part of the Assignment.
To complete this part, address the following:
· Using the Week 4 Part 2 Assignment Template and the data provided by your Instructor in the Doc Sharing area, calculate the price variances (price variance and wage rate variance) and quantity variances (quantity variance and labor efficiency variance) for each material and direct labor.
· Note: In addition to submitting your work in Excel, include your calculations within your report by copying and pasting the information from Excel. For information on inserting data from Excel into Word, refer to the following:
Microsoft. (n.d.). Insert a chart from an Excel spreadsheet into Word. https://support.microsoft.com/en-us/office/insert-a-chart-from-an-excel-spreadsheet-into-word-0b4d40a5-3544-4dcd-b28f-ba82a9b9f1e1
· Analyze what the variances to the standards are, including an examination of possible causes.
· Propose at least two recommendations for potential remedies to address the variances.
· Summarize how understanding variance analysis can impact managerial decision making.
Transfer Pricing
The next area you have been asked to address is regarding the decision to transfer the new lounge chair from its production division in Country X to the company’s retail division in Country Y. The management team wants to understand which transfer pricing method should be used: full cost or variable cost. In Doc Sharing, your Instructor will provide you with a scenario for The Better Chair Company to use for this part of the Assignment.
To complete this part, address the following:
· Using the Week 4 Part 2 Assignment Template and the data provided by your Instructor in the Doc Sharing area, calculate the full-cost transfer pricing method and the variable-cost transfer pricing method.
· Note: In addition to submitting your work in Excel, include your calculations within your report by copying and pasting the information from Excel.
· Synthesize the results of your calculations to recommend which transfer pricing method will result in a better overall outcome.
· Explain how understanding and utilizing transfer pricing can impact managerial decision making.
