In their efforts to plan for production, the Operations Planning Group at the Akon Manufacturing Company collected the following data about its operations: Number of employees at the start of the first quarter 126 Cost per employee $3,500 per quarter Number of units produced per employee 100 per quarter Over-time Not allowed Demand for the first quarter 12,800 units Demand for the second quarter 12,500 units Demand for the third quarter 13,100 units Demand for the fourth quarter 12,100 units Cost of hiring a worker $3,000 Cost of laying off a worker $2,000 Inventory carrying cost per unit $250 per year Backorder cost per unit $125 per quarter Initial inventory 500 What is the cost of each plan? Which is the preferred Plan: Why?
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
- In their efforts to plan for production, the Operations Planning Group at the Akon Manufacturing Company collected the following data about its operations:
|
Number of employees at the start of the first quarter |
126 |
|
Cost per employee |
$3,500 per quarter |
|
Number of units produced per employee |
100 per quarter |
|
Over-time |
Not allowed |
|
Demand for the first quarter |
12,800 units |
|
Demand for the second quarter |
12,500 units |
|
Demand for the third quarter |
13,100 units |
|
Demand for the fourth quarter |
12,100 units |
|
Cost of hiring a worker |
$3,000 |
|
Cost of laying off a worker |
$2,000 |
|
Inventory carrying cost per unit |
$250 per year |
|
Backorder cost per unit |
$125 per quarter |
|
Initial inventory |
500 |
- What is the cost of each plan?
- Which is the preferred Plan: Why?
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