Papaya Partners Variance Analysis Case study 1

Papaya Partners Variance Analysis Case study

Companies need to have active control on their numbers, to make sure they are on track with

their financial goals forecasted, to ensure their profitability hence to make strategical decisions

part of directing and controlling. As quoted by (Walther & Skousen, 2009)) Likewise, business

managers must rely on systematic monitoring tools to maintain awareness of where the business

is headed. We will in this paper perform required calculations with articulations,

recommendations and conclude on the Papaya Partners actuals versus planned costs.

As part of companies’ governance there’s regular financial reviews to understand the trends of

the number and take corrective actions. To achieve our analytical process, we start with

calculations

 Standard cost per Unit

Fruit $200,000/($50000/$25) $10

Packaging $10,000/$20,000 $0.5
Labor $90,000/$20,000 $4.5
Standard Costs per Units $10+$0.5+$4.5 $15 /Carton

Labor rate per hour $90,000/($20,000 x 0.5) $9

 Actual cost per unit

Fruit $244,000/($50000/$25) $12.21
Packaging $11,000/$20,000 $0.55
Labor $150,000/$20,000 $7.50
Actual Costs per Units $10+$0.5+$4.5 $20.26 /Carton

Labor rate per hour $150,000/($20,000*0.75) $10

 Direct materials price variances = (AP – SP) × AQ P (Heisinger & Hoyle, 2012)
Papaya Partners Variance Analysis Case study 2

where A is Actual, P is Price, S is standard, Q is quantity per price

Cost of Fruit ($12.21-$1) x 200,000 $44,200 unfavorable

Cost of Packaging ($1 - $0.55) x 11000 $5,500 unfavorable

 Direct materials usage variances = (AQU – SQ) × SP (Heisinger & Hoyle, 2012)
where A is Actual, P is Price, S is standard, Q is quantity per unit
Cost of Fruit ($200,000-$200,000) x $1 $0 No variance

Cost of Packaging ($11,000 - $20,000) x $0.50 -$4,500 favorable

 Direct labor rate variance = (AR − SR) × AH (Heisinger & Hoyle, 2012)
where A is Actual, H is hour, S is standard, R is Rate
labor rate per hour ($10-$9) x 15 $15,000 unfavorable

 Direct Labor Efficiency = (AH − SH) × SR (Heisinger & Hoyle, 2012)

where A is Actual, H is hour, S is standard, R is Rate
labor rate per hour ($15,000-$10,000) x 9 $45,000 unfavorable

By summing up the variances, we will reach the $105,200 Unfavorable variance. Papaya

Partners is making a negative impact on Operating profit drive by Direct material price variance,

Direct labor per hour and Labor rate per hour. We however have some stable and positive trend

on Direct material usage with no variance on fruits and some profit on packing.

Many technics can be used on variance, one of the is the 4W’s interrogations, where is the

difference, when it happened, why these differences and What next.

We must work with sourcing and production departments to fix these variances. We will

recommend Direct Fruits and packing cost need to be reduced by finding cheaper suppliers,

Labor hours need to be reduced and efficiency to be improved by negotiating better rates and

more qualified labors or provide some training to increase their performance. By doing so

Papaya Partner should be able to restore the negative trend and turn it back to positive.

References
Papaya Partners Variance Analysis Case study 3

Walther, L. M. & Skousen, C.J. (2009). Managerial and Cost Accounting. Retrieved from

https://library.ku.ac.ke/wp-content/downloads/2011/08/Bookboon/Accounting/managerial-and-

cost-accounting.pdf

Heisinger, K., & Hoyle, J. B. (2012). Accounting for Managers [Digital Edition version].

Creative Commons. Retrieved from https://2012books.lardbucket.org/books/accounting-for-

managers