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Miles High Cycle

Q1. Examine the direct cost and overhead variances. What might be causing each of the
variances to occur?
Indeed, the cost has changed due to the following factors:
Variances % weight
Derived From Price 477.787,00 44%
Derived from volumes 427.000,00 40%
Rework parts - Wheel Assembly 25.000,00 2%
Rework parts - Final Assembly 45.000,00 4%
Other Costs (variable) 100.000,00 9%
Variance ($) 1.074.787, 00
Total Cost per unit
Cost at 10000 units produced 10.895.000, 00 1.089,50
Cost at 10800 units produced 11.969.787,00 1.108,31
Variance ($) 1.074.787,00 18,81
Variance (%) 9, 86%1, 73%

As we can see above, the two main factors were increase in price (44% of the increase) and
increase in volumes (40% of the increase), followed by rework parts and overhead (2/3 variable)
Q2. Should Bob Moyer be concerned about Mile High Cycles' performance? Where should he be
prepared to direct his attention? What additional information should he try to obtain?
Yes. Bob should drive his attention to the prices of the items he needs, since almost half of the
increase was caused by increases in prices (maybe inflation). Also, there are inefficiencies in the
production line that caused the cost related to rework parts. Either way there isnt any

explanation over the increase in other costs, 2/3 out of which are variable, as this additional
information is not provided yet.

Q3. Are there any purposes for which a total, per unit variance would be more useful than a
series of functional variances? If so, for what?
Yes, because by comparing cost per unit one can measure the marginal cost for each additional
unit produced. However, such data is not sufficient, since it must be identified why the unit cost
has changed, and such is only possible through a price/volume analysis, as in item 1.