| Course | BUS 510 Managerial Accounting |
|---|---|
| Module | Module 7 |
| Paper type | Variance analysis report |
| Length | About 1,059 words, 6 pages |
| Format | APA 7 student paper |
| School | Aspen University |
| Program | MBA |
| Updated | October 2026 |
Free sample paper for BUS 510 Module 7
Flash, Overtime and a Resin Surcharge: A Standard Cost Variance Analysis for One Month at a Kayak Maker
Student Name
MBA Program, Aspen University
BUS 510: Managerial Accounting
Instructor Name
Month Day, Year
Flash, Overtime and a Resin Surcharge: A Standard Cost Variance Analysis for One Month at a Kayak Maker
Northwoods Paddle Company, a composite manufacturer in Bemidji, Minnesota, makes recreational kayaks by rotational molding, heating polyethylene resin inside a spinning mold until it coats the walls, then cooling, trimming and fitting each boat with seats and hardware. The company planned to build 2,000 kayaks in May but built 1,800, and the month's costs ran well above what the controller expected. The plant manager blamed a resin price increase; the purchasing manager blamed the plant. This report uses standard costs and variances to find out what actually happened.
Standards for One Kayak
| Input | Allowed per kayak | Price allowed | Cost allowed per kayak |
|---|---|---|---|
| Polyethylene resin | 32 pounds | $1.40 per pound | $44.80 |
| Direct labor | 2.5 hours | $24.00 per hour | $60.00 |
| Variable overhead, applied on labor hours | 2.5 hours | $10.00 per hour | $25.00 |
| Fixed overhead, budgeted $90,000 for 2,000 kayaks | Not applicable | $45.00 per kayak | $45.00 |
| Total standard cost | Not applicable | Not applicable | $174.80 |
The Flexible Budget
Comparing May's actual costs with the original budget for 2,000 kayaks would mix two questions: did the company build fewer kayaks, and did it spend efficiently on the kayaks it built? A flexible budget answers the second by restating the budget at actual output. At 1,800 kayaks, standard resin is 57,600 pounds costing $80,640, standard labor is 4,500 hours costing $108,000 and standard variable overhead is $45,000. Fixed overhead remains budgeted at $90,000 because it does not change with volume.
Resin Variances
In May, the plant used 61,200 pounds of resin bought at $1.52 a pound, a total of $93,024. The price variance equals the actual price minus the standard price, times the actual quantity: $0.12 times 61,200, or $7,344 unfavorable. The usage variance equals the actual quantity minus the standard quantity allowed for actual output, times the standard price: 3,600 pounds times $1.40, or $5,040 unfavorable. Together, resin cost $12,384 more than the flexible budget allowed.
Labor Variances
Molders and finishers worked 4,860 hours at an average of $25.50 an hour, a total of $123,930. The rate variance is the actual rate minus the standard rate, times actual hours: $1.50 times 4,860, or $7,290 unfavorable. The efficiency variance is actual hours minus standard hours allowed, times the standard rate: 360 hours times $24, or $8,640 unfavorable. Labor cost $15,930 more than the flexible budget.
Overhead Variances
Actual variable overhead was $46,200. At the standard rate, the 4,860 hours actually worked would have been expected to cost $48,600, so the variable overhead spending variance is $2,400 favorable. Because overhead is applied on labor hours, the 360 extra hours also create an efficiency variance of 360 times $10, or $3,600 unfavorable. The net variable overhead variance is $1,200 unfavorable.
Actual fixed overhead was $93,500 against a budget of $90,000, a spending variance of $3,500 unfavorable. Because fixed overhead is applied at $45 per kayak, only $81,000 was applied to 1,800 kayaks, leaving a production volume variance of $9,000 unfavorable. The volume variance reflects unused capacity, not overspending.
Summary of Variances
| Variance | Amount | Direction |
|---|---|---|
| Resin price | $7,344 | Unfavorable |
| Resin usage | $5,040 | Unfavorable |
| Labor rate | $7,290 | Unfavorable |
| Labor efficiency | $8,640 | Unfavorable |
| Variable overhead spending | $2,400 | Favorable |
| Variable overhead efficiency | $3,600 | Unfavorable |
| Fixed overhead spending | $3,500 | Unfavorable |
| Fixed overhead production volume | $9,000 | Unfavorable |
| Total | $42,014 | Unfavorable |
What Caused the Variances
Investigation traced the variances to three events. First, the resin supplier added a surcharge of 12 cents a pound in April, citing higher feedstock costs, which explains the whole price variance. The purchasing manager could not have avoided it without a fixed-price contract, which the company did not have. Second, to soften the surcharge, the plant switched in May to a cheaper resin grade from a second supplier. That grade flowed differently in the molds and left more flash, excess plastic at the seams, which had to be trimmed and discarded. The extra resin and trimming time explain most of the usage variance and part of the labor efficiency variance. Third, three experienced molders left in April, and the plant hired four new ones who worked more slowly and needed overtime from the remaining crew, explaining the rate variance and the rest of the efficiency variance. The low output, which created the volume variance, followed from the same staffing problem.
Read together, the variances show that the cheaper resin saved little: the second supplier's price advantage was smaller than the extra resin and labor it consumed.
Which Variances to Investigate
Managers, as Merchant and Van der Stede note, cannot investigate every variance and should focus on those that are large, recurring or controllable (Merchant & Van der Stede, 2017). Northwoods uses a simple rule: investigate any variance above 5% of its flexible budget amount or any variance in the same direction for three consecutive months. By that rule, the resin usage, labor rate and labor efficiency variances all qualify. The resin price variance exceeds the threshold but is not controllable in the short run; it calls for a contract decision rather than a performance review. The favorable variable overhead spending variance is small but worth a question, since lower maintenance spending can show up later as breakdowns.
Adding Operating Measures
Kaplan and Norton (1992) argued that financial measures alone report results too late and say little about their causes, and that companies should track operating measures beside them. Variances told Northwoods that costs rose; a daily flash rate, measured as pounds trimmed per kayak, and first-month productivity for new molders would have shown the problems as they emerged. The plant manager will post both on the shop floor.
Recommendations
The company should return to the original resin grade, negotiate a six-month fixed-price agreement with its main supplier, assign every new molder a veteran partner for four weeks and review the standards for labor time if turnover continues. Datar and Rajan (2021) caution that standards should be revised when conditions change permanently, so that variances keep pointing to real problems rather than outdated targets.
Conclusion
May's variances added $42,014 to costs at Northwoods. A flexible budget separated volume from efficiency, and the individual variances, read together, traced the overruns to a supplier surcharge, a false economy in resin and the loss of experienced workers. The analysis gave the plant and purchasing managers a shared account of the month instead of competing explanations.
References
Datar, S. M., & Rajan, M. V. (2021). Horngren's cost accounting: A managerial emphasis (17th ed.). Pearson.
Kaplan, R. S., & Norton, D. P. (1992). The balanced scorecard: Measures that drive performance. Harvard Business Review, 70(1), 71-79.
Merchant, K. A., & Van der Stede, W. A. (2017). Management control systems: Performance measurement, evaluation and incentives (4th ed.). Pearson.
Reading the BUS 510 Module 7 assignment instructions
The Aspen catalog connects BUS 510 to using accounting data for management and profitability, and a variance module usually asks students to compare actual results with standards and explain the differences. Follow the Module 7 prompt in your classroom; this example prepares a full variance report for one month. State the standards and the actual results. Use a flexible budget so that differences caused by volume are separated from differences in prices and efficiency. Split each cost difference into its parts, separating what was paid from how much was used, for materials, labor and overhead as your course defines them, labeling each as favorable or unfavorable. Present the results in a summary table. Trace each significant variance to an operational cause, identify who is responsible and recommend actions. Explain how you decide which variances to investigate.
How this BUS 510 Module 7 example is built
The paper begins with Northwoods Paddle Company's standards for one kayak: 32 pounds of polyethylene resin at $1.40 a pound, 2.5 labor hours at $24 an hour and overhead applied on labor hours. A flexible budget for 1,800 kayaks shows what costs should have been at actual volume. Resin variances total $12,384 unfavorable, split between a price variance of $7,344 and a usage variance of $5,040. Labor variances total $15,930 unfavorable, from a rate variance of $7,290 and an efficiency variance of $8,640. Variable overhead variances net to $1,200 unfavorable, and fixed overhead shows a $3,500 spending variance and a $9,000 volume variance. A summary table gathers all of them. Causes, responsibility and an investigation rule follow, and Kaplan and Norton's article supports adding operating measures such as flash rate.
Reading the BUS 510 Module 7 grading rubric
Variance reports in an MBA accounting course are graded on correct calculation, correct direction of each variance, use of a flexible budget and quality of explanation. This example states every formula in words before applying it, so a grader can check inputs and arithmetic, and labels each result as favorable or unfavorable with the reason. The flexible budget is built first, which prevents the common error of comparing actual costs at 1,800 units with a budget for 2,000. Interpretation earns most of the remaining marks: each variance is traced to an operational event and a responsible manager, and related variances are read together. Formulas follow the Datar and Rajan text, Merchant and Van der Stede's text on management control supports the investigation rule, and Kaplan and Norton's Harvard Business Review article explains why nonfinancial measures belong beside the numbers.
BUS 510 Module 7 help from the desk
The most frequent errors in Module 7 are comparing actual costs with a static budget, reversing the sign of variances and mixing actual and standard quantities in the wrong places. Build a flexible budget at actual output first. For price variances, multiply the price difference by the actual quantity; for quantity variances, multiply the quantity difference by the standard price. Label every variance favorable or unfavorable and say why. Do not stop at numbers; instructors want the operational story behind each variance and who can act on it. Read related variances together, since a cheaper material can cause an unfavorable usage variance. Avoid blaming the purchasing manager for a price variance caused by a market-wide increase. Explain your threshold for investigation, and note that a favorable variance can signal a problem too, such as skipped maintenance.
Write yours, or have the desk draft it
This paper is an original model document written by our desk, not a submitted student paper and not an official Aspen University document. Read it for the moves, then write your own to the instructions in your classroom. If you want one built to your exact prompt and rubric, the first custom sample is free and arrives in 24 to 48 hours.
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BUS 510 Module 7 questions, answered
What does BUS 510 Module 7 usually ask for?
Aspen's BUS 510 covers variance analysis and control in this module, so computing material, labor and overhead variances from standards and explaining their causes is typical. Check your classroom prompt.
What is a flexible budget?
A budget recalculated for the actual level of activity, so that costs can be compared with what they should have been at the volume actually produced.
How do you calculate a materials price variance?
Multiply the difference between the actual price and the standard price by the actual quantity purchased or used.
Where can I find a free BUS 510 Module 7 sample paper?
The full report is shown above: a kayak maker's month with a flexible budget, resin, labor and overhead variances in a summary table and the causes traced to operations.
Which variances should a manager investigate?
Usually those that are large relative to the standard, that recur, or that point to a controllable problem; small random variances are often left alone.