Campar Industries Case Study
Essay by Kirubakaran Shanmugam • October 16, 2016 • Case Study • 1,234 Words (5 Pages) • 2,802 Views
Abstract
Campar Industries, Inc., is a company with multiple divisions, competing in different countries. Variance analysis is done for each division using the available data from the textbook to establish which divisions are functioning profitably and to identify the possible causes for the problems in other divisions.
Campar Industries, Inc.
Alpha division
Budgeted unit margin = Budgeted price – standard cost
= $72 - $43 = $29.
Actual unit margin = Actual price – standard cost
= ($1658250/22000) - $43 = $75.38 - $29 = $32.375 ~ $32.38
Unit margin variance = ∆Unit margin * Actual volume
= ($32.38 - $29)*22000 = $3.38*22000 = $74360.
Sales volume variance = ∆Volume * Budgeted unit margin
= (22000 – 24000)*$29 = -$58000. Minus sign indicates unfavorable variance.
Net gross margin variance = Actual gross margin – Budgeted gross margin
= (22000*$32.38) – (24000*$29) = $712360 – $696000 = $16360.
Or Net gross margin variance = Unit margin variance + Sales volume variance
= $74360 + (-$58000) = $74360 - $58000 = $16360.
Discussion
Though the sales volume variance is unfavorable, due to the favorable unit margin variance overall effect turnouts to be favorable. This is shown by a positive (favorable) net gross margin variance.
Beta division
Variance calculations
Product | Budgeted volume at Budgeted mix at Budgeted margin | Sales volume variance | Actual volume at Budgeted mix at Budgeted margin | Product mix variance | Actual volume at Actual mix at Budgeted margin | Unit margin variance | Actual volume at Actual mix at Actual margin |
1 | 3200*$12 = $38400 | -$1536 | 3072*$12 = $36864 | -$2664 | 2850*$12 = $34200 | $684 | 2850*$12.24 = $34884 |
2 | 1700*$15.60 = $26520 | -$1061 | 1632*$15.60 = $25459 | $13541 | 2500*$15.60 = $39000 | -$1250 | 2500*$15.10 = $37750 |
3 | 5100*$10.80 = $55080 | -$2203 | 4896*$10.80 = $52877 | -$6977 | 4250*$10.80 = $45900 | -$1020 | 4250*$10.56 = $44880 |
Total | -$4800 | $3900 | -$1586 | ||||
Net | -$2486 |
Net gross margin variance = Actual gross margin – Budgeted gross margin
= (9600*$12.24) – (10000*$12) = $117504 – $120000 = -$2496.
Discussion
The net gross margin variance almost equals the sum of the three variance components calculated individually, the slight difference could be due to the rounding of decimal figures during calculations. It also concurs the unfavorable variances found in this division.
Gamma division
This division buys two raw materials X & Y, both are not supposed to be spoiled during production. So waste allowance. Usage for the month of July is 5500 lbs for X and 4500 lbs for Y, i.e., 10000 lbs in total resulted in 9900 lbs of the actual finished product.
Mix variance
Total raw material consumption = 5500 lbs + 4500 lbs = 10000 lbs.
Standard mix for Material X: 10000 * 60/100 = 6000 lbs.
Standard mix for Material Y: 10000*40/100 = 4000 lbs.
Mix variance = (Standard mix – Actual mix)*Standard price
For Material X: (6000 – 5500)*$1.69 = 500*$1.69 = $845.
For Material Y: (4000 – 4500)*$2.34 = (-500)*$2.34 = -$1170.
Total usage variance = $845 + (-$1170) = $845 - $1170 = -$325.
Price variance
For Material X: ($1.69 - $1.69)* $5500 = $0.
For Material Y: ($2.34 - $2.53)*4500 = -$855.
Total price variance = $0 + (-$855) = $0 - $855 = -$855.
Usage variance
`Usage variance = (Standard quantity – Actual quantity)*Standard price
= (9900 – 10000)*$1.95 = -$195.
Net Variance
Net variance = Mix variance + Price variance + Usage variance
= -$325 + (-*$855) + (-$195) = -$325 - $855 - $195 = -$1375.
Discussion
Material, price and usage variances are all unfavorable in this division suggesting that costly combination of materials have been used than the standard mix, sales were made at a lower average price than the standard and higher consumption of material during the period as compared with the standard usage, respectively.
Material mix variance focuses on the aspect of proportion of raw materials used in the production process that could have been changed due to change in the quality, performance and durability of the final product, variation in price offered by customers due to change in product quality perception. Also the change in material mix may affect material workability which could affect labor efficiency.
Causes for unfavorable sales price variance may be due to the increase in market competition, decrease in product demand and/or reduction in price enforced by regulatory authorities.
Reasons for unfavorable material usage variance may be due to purchase of lower quality materials than the standard, unskilled labor and/or increase in material wastage due to depreciation of plant and equipment.
Delta division
Delta Division makes two products, A and B in the same factory using the same raw materials employing same workforce.
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