Olympia Inc.produces small row boats.Standard cost information for each boat is presented below.

Olympia produced and sold 1,000 boats for the year,and encountered the following production variances.

Company policy is to investigate all unfavorable variances above 10 percent of the flexible budget amount for direct materials,direct labor,and variable overhead.
a.Identify the variances that should be investigated according to company policy.Show calculations to support your answer.
b.What potential weakness exists in the company's current policy?

Question

Olympia Inc.produces small row boats.Standard cost information for each boat is presented below.
  
Olympia produced and sold 1,000 boats for the year,and encountered the following production variances.
  
Company policy is to investigate all unfavorable variances above 10 percent of the flexible budget amount for direct materials,direct labor,and variable overhead. 
a.Identify the variances that should be investigated according to company policy.Show calculations to support your answer.
b.What potential weakness exists in the company's current policy?

Quizplus · Accepted Answer

The Answer of Olympia Inc.produces small row boats.Standard cost information for each boat is presented below.
  
Olympia produced and sold 1,000 boats for the year,and encountered the following production variances.
  
Company policy is to investigate all unfavorable variances above 10 percent of the flexible budget amount for direct materials,direct labor,and variable overhead. 
a.Identify the variances that should be investigated according to company policy.Show calculations to support your answer.
b.What potential weakness exists in the company's current policy?