1) Explain what is causing the level 3 variances in requirement #3.
The apparent cause of level 3 variance is due to the impact of brand minor repairing revenue which is 34,800 addition and the impact of the efficiency of Orchestra minor repairing employees is a negative 48180. Then the variable costs also changed as a response to the labor costs. Moreover, delivery charges also increased and that added to the costs and so the variance is unfavorable.
2) Explain what is causing the level 3 variances in requirement #4. Since this is only a revenue analysis you should use the information in the case (price changes, number of jobs), and the segmented income statement to discuss the differences.
The main reason of the variance is a combination of more hours taken by hourly labor for brand minor repairs and the decrease in rate as well as the increased efficiency of Orchestral minor employees and the decrease in the rate per hour that the company charged to the customers. The labor wage increased by 50% because they took 3 hours instead of 2 in repairing the band. Orchestral repair salaries also added to the expenses as the total jobs exceeded 1650 jobs. Then the cost of replacement parts also increased for the major repairs and so does the delivery costs.
3) How does the way the workers are compensated to impact the profit?
The way workers are compensated impacts the profits greatly. The people that are paid fixed salaries and then a fixed amount for extra jobs, they tend to be more efficient as they would be paid an extra amount for extra work. This also benefits the company as it can not only perform more jobs but due to decrease costs, can charge the customer lower prices as well. That is why the business also received more Orchestral minor repairs jobs and that added a significant operating income to the business.
On the other hand, if the hourly employees have no incentive to perform the jobs quickly and so they tend to work slowly which increases the costs and thus the price which business charge to the customers. That is why business received fewer jobs of Band minor repairs and there is very little operating revenue as well.
4) Based on your answers to the questions above, what are your suggestions to the owners of The Squeaky Horn? Make sure you tie in your analysis from above to your suggestions.
On the basis of the above analysis, it is suggested that the owners should hire permanent employees for Band minor repairs jobs and pay them similar compensation as to the Orchestral minor repairs. This would result in increased efficiency of the labor and thus the lower cost and the business would be able to charge competitive prices and the customers would not turn their back to the Squeaky Horn. Currently, The Band minor repairs have reported the lowest contribution margin per job. Only if this segment started operating as efficiently as other segments, the problem will be solved.
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