Mile High Cycle Essay
Managerial Planning and Control
Mile High Cycles Case Study
Business School São Paulo - BSP
Professor Douglas Oliveira
1) Determine the direct costs and overhead variances. What might be causing each of the variances to occur?
In the Frame assembly department, the main variances are related to the forecast not precise of actual weight of the materials and underestimation of actual prices. See below:
[pic]
In the wheel assembly department the main variance is in quantity as shown below:
[pic]
And also related to rework of parts with an impact of 25k.
In the final assembly phase again the main variance is related …show more content…
The rework should also have been budget for because the Company is operating since 2003 and they probably knew they had rework at the time the budget was created. We also need to consider that the variances in quantity are relative because if I can sell everything that I produce, this impact will be zero when I sell.
2) 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?
If he can sell all the extra production, the impact in total cost would be reduced in approximately $500k. See reconciliation below:
[pic]
The total impact in cost per item is only $129k as seen below:
[pic]
And half of this is related to rework (approx $6 per item). We believe he should not be concerned as long as he can sell all additional items produced and he needs to focus his attention in the rework to reduce it to minimum levels. He needs to understand what is causing this rework and attack the root cause to avoid it. He should also try to understand exactly which costs are included in the Other Costs overhead because the amount is too representative in the total overhead to not be analyzed
Mile High Cycles Case Study
Business School São Paulo - BSP
Professor Douglas Oliveira
1) Determine the direct costs and overhead variances. What might be causing each of the variances to occur?
In the Frame assembly department, the main variances are related to the forecast not precise of actual weight of the materials and underestimation of actual prices. See below:
[pic]
In the wheel assembly department the main variance is in quantity as shown below:
[pic]
And also related to rework of parts with an impact of 25k.
In the final assembly phase again the main variance is related …show more content…
The rework should also have been budget for because the Company is operating since 2003 and they probably knew they had rework at the time the budget was created. We also need to consider that the variances in quantity are relative because if I can sell everything that I produce, this impact will be zero when I sell.
2) 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?
If he can sell all the extra production, the impact in total cost would be reduced in approximately $500k. See reconciliation below:
[pic]
The total impact in cost per item is only $129k as seen below:
[pic]
And half of this is related to rework (approx $6 per item). We believe he should not be concerned as long as he can sell all additional items produced and he needs to focus his attention in the rework to reduce it to minimum levels. He needs to understand what is causing this rework and attack the root cause to avoid it. He should also try to understand exactly which costs are included in the Other Costs overhead because the amount is too representative in the total overhead to not be analyzed