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SARAH'S SOAPS VARIANCE ANALYSIS
	Budget	Actual	Fav(Unfav)
Market Size(12 Packs)	50000	60000	10000
Sarahs Soap 12 Packs	10000	11000	1000
Share %	20.0%	18.3%	-1.7%
Revenue	100000	104500	4500
Material	20000	21780	(1780)
Direct Labor	16000	18150	(2150)
Variable Mfg OH	15000	13860	1140
Contribution Margin	49000	50710	1710
Manufacturing	10000	11000	(1000)
Marketing/Advertising	8000	10000	(2000)
Engineering	10000	8000	2000
Administration	10000	10500	(500)
Profit	11000	11210	210

Specifically, we learn:

• The market for Sarahs soap is budgeted to be 50,000 dozen per month (therefore she is budgeting a 20% market share 10,000/50,000). The actual market for the month turned out to be 60,000 dozen
• In addition to variable material and direct labor costs, Sarahs manufacturing operations incurs variable overhead utilities for machinery, fringe benefits for direct labor, etc. She has budgeted this at 0.5 machine hours per dozen at a cost of $3.00 per machine hour; for the month. 0.45 machine hours were used per dozen at an actual cost of $2.80 per machine hour
• Sarah also has four categories of fixed costs with budget and actual results as follows:

Budget Actual

Manufacturing	10000	11000
Marketing/Sales	8000	10000
Engineering	10000	8000
Administration	10000	10500

Using the blank template posted on Blackboard, re-compute all the variances for Sarahs Soaps for the month. Note: /\ in the template means change in value. Additional variances you will need to calculate are:

• Market size variance
• Market share variance (together these two equal sales volume variance)
• Variable OH usage/efficiency variance (similar to DL usage/efficiency variance)
• Variable OH cost variance (similar to DL cost variance)
• The four fixed cost variances (for this class, we will use just the raw differences as above)

1. Explain the $210 variance for the month and recommend possible corrective actions using the six-step process.

After the variance analysis, it found out that total variances is $210.

Recommend possible corrective actions using the six-step process.

1. Set the benchmark (budget, strategic plan, etc.)
2. Record the actual results to compare to benchmark
3. Compute the variances
4. Assign responsibility
5. Determine causes of significant variances (both good and bad)
6. Take corrective action

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