Tue-Wed And Fri-Mon Company Case Study

According to Appendix 2, sales volume variance in 2010 is 500 units or $12,500 favorable (F) in terms of sales revenue. The increasing of sales volume comes from the promotion of price different between Tue-Wed and Fri-Mon because the sharing revenue of Tue-Thr increases from 20% to 30% comparing to the previous year. Although the units of sales are raised from 10,000 to 10,500units, the increasing of net income is only 0.81 $/ unit starting from 10,000 units, so the different net income is $405 F. Thus, the both consuming costs come from variable overhead cost (VOH) and fixed overhead cost (FOH).
For VOH, this cost is the direct cost to the product such as, labor, food, operating expense, and employee benefits. The total spending variance of VOH is $1,725 unfavorable (U) because of the changed unit sales and VOH rate. However, the direct labor (DL) is the important impact for VOH because the budget hour is 2,500 hours for 10,000 units, but the promotion of the store can help reduce hours to 2,250

The total spending variance of FOH is $17,920 U, and the production volume variance is $5,125 F. Therefore, the main impact of FOH is spending variance because the number is quite high comparing with other factors like, VOH spending variance, production volume variance. Referring to appendix 1, the highest change is the management overhead including store rent and manager’s pay, so the allocation of the budget is based on the percentage basis. This item should be considered to use the actual cost of previous year plus the increasing percentage in each year. The service development, cost of studying new products for the store, can be reduced in the next year after the product is launched in this year because I have to wait for the feedback from the customers before promoting a new product