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Papaya Partners Case Study Unit 5

This case study examines Papaya Partners' variance analysis to evaluate actual performance against budgets. Variance analysis helps identify cost overruns or profits and investigate their sources. Papaya Partners calculated variances for direct materials price and usage. The direct materials price variance was unfavorable due to higher actual costs for fruits and packaging than budgeted standards. The direct materials usage variance was also unfavorable, indicating actual material quantities used exceeded standards. To control costs, Papaya Partners should understand price variances, change fruit suppliers, find alternative packaging, and manage labor costs which exceeded budget. Variance analysis helps the company improve efficiency and identify potential fraud.

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164 views3 pages

Papaya Partners Case Study Unit 5

This case study examines Papaya Partners' variance analysis to evaluate actual performance against budgets. Variance analysis helps identify cost overruns or profits and investigate their sources. Papaya Partners calculated variances for direct materials price and usage. The direct materials price variance was unfavorable due to higher actual costs for fruits and packaging than budgeted standards. The direct materials usage variance was also unfavorable, indicating actual material quantities used exceeded standards. To control costs, Papaya Partners should understand price variances, change fruit suppliers, find alternative packaging, and manage labor costs which exceeded budget. Variance analysis helps the company improve efficiency and identify potential fraud.

Uploaded by

Ola Alyousef
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Papaya Partners Case Study

Department of MBA, The University of the People

BUS 5110 - Managerial Accounting

Dr. Rebecca Attah

December 15, 2021


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Papaya Partners Case Study

In performing the “control” aspect of Planning and Control, companies use a process called
“Variance Analysis” to evaluate actual company performance against what was expected and use
the result to try to investigate the exact source of cost overruns or larger profits. It not only helps
guide efficiency but can also be a tool to spot irregularities that may in fact be fraudulent
(Heisinger & Hoyle, n.d.).

1. Standard cost per unit = Standard cost is the estimated cost per unit including material,
overheads and labor.

Here standard cost for 5,00,000 cartons is $3,00,000

So standard cost per unit = Total budget cost / budgeted number of cartons = $ 3,00,000 /
5,00,000 = $ 0.60 per carton

2. Actual cost per unit = Total actual cost / actual number of cartons = $ 4,05,200 / 5,00,000 = $
0.8104 per carton

3. Direct material price variance: It is the difference between actual amount spent on direct
material and the amount that would have been spent if the material had been purchased at
standard price. This is the difference between actual costs for materials purchased and budgeted
costs based on standards. The materials quantity variance is the difference between the actual
quantity of materials used in the production and the budgeted materials that should have been
used, to calculate the direct material usage quantity variance, the difference between the actual
quantity of materials used in production and the amount budgeted (Heisinger & Hoyle, n.d.).

So direct material price variance = ($ 244200+$ 11000) - ($ 200000+$ 10000) = $ 45,200


(Unfavorable)

4. Direct material usage variance - It is the difference between actual quantity of material utilized
during a period and the standard consumption of material for the level of output achieved

Direct material price variance = (Actual quantity - standard quantity) X Standard price

ACTUAL STANDARD
QUANTITY QUANTITY
FRUITS
TOTAL COST 244200 200000
PER CARTON COST 10 10
QUANTITY 24420 20000

PACKAGING
TOTAL COST 11000 10000
PER CARTON COST 0.55 1
QUANTITY 20000 10000
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Papaya Partners Case Study

DIRECT MATERIAL PRICE VARIANCE


FRUIT (24420 - 20000) * 10 = $ 44200 (U)
PACKAGING (20000 - 10000) *1 = $ 10000 (U)

As can be seen from the unfavourable variances, Papaya partners need to understand price and
labour and the purchasing manager to understand if the company could be bought from a
different supplier to stay within the budgeted cost as well as the added cost of labour should be
discussed with human resource management as it was way above the budgeted price. Finally,
they should manage the cost of labour, change the supplier of fruits to decrease the cost, and look
for alternative packaging materials to reduce the cost of packaging.

References:

Heisinger, K., & Hoyle, J. B. (n.d.). Accounting for Managers. Chapter 10. Retrieved from:

https://2012books.lardbucket.org/books/accounting-for-managers/s14-how-do-managers-evaluate-
perfo.html

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