I.

Brief background of LEGITBIZ COMPANY

Owners of the LegitBiz Company

General Manager: Nathaniel John B. Chio

Marketing Manager: Jannah Joy C. Bacang

Sales Manager: Maria Kirshey T. Arango

Operations Manager: John Carlo L. Peñaranda

Financial Manager: Danica Jean I. Ratunil

Purchasing Manager: Karl Anro F. Daya

Cash Manager: Eva Mae C. Olape

Product Information

LegitBiz Company is a sole proprietorship business that mainly sells Dough Wrapped Burger

which is inspired from a restaurant called Korzo in New York City. They took the classic burger

to the next level, with the combination of ground beef/chicken, tomato, onion, cheddar cheese,

mayonnaise and ketchup wrapped in dough instead of the conventional bun and deeply-fried. It

gives a new tasting experience to its customers since it is homemade and not highly

commercialized compared to the existing products in the market.

Capitalization

LegitBiz Company’s starting capital is Php 24,500.00 in which the owners of the business

contributed Php 3,500.00 individually. The initial investment was used to purchase the direct

materials used for production, the equipment and other expenses needed to operate the business.

Location

LegitBiz Company first operated in SEC Mall but their previous location was under

reconstruction. Their business is currently located near Movie Dream along Archbishop Hayes in

corner Mortola Streets. It is not visible to the customers and it does not serve its target market

which is the population of Xavier University – Ateneo de Cagayan. However, the area where the

business operates is a terminal area for the Iponan jeepneys, therefore, it is still a viable spot to

conduct business.
 Frequency of Operations

The business started and operated on the month of July 2018. On the first two months of its

operation, it is regularly open on weekdays from 1:00 to 4:30 PM. However, for the following

months, there is no adherence to the schedule. The business was also not able to operate for the

month of November since their previous business location was under construction and the

employees were tied up to find another spot for selling.

II. Tabular Format of the Outcome of the Computation

A. Materials

For the Month of July 31, 2018

Total Actual
Total Actual
Quantity at Total Standard
Cost Variance
Variance Type Standard Price Cost (YTD
(YTD 07/31/18 Amount
(YTD 07/31/18 07/31/18 Data)
Data)
Data)

P5,456.63
Net Materials
P6,948.22 Unfavorable
Variance P12,404.85

Material Price 0
P12,404.85 P12,404.85
Variance Favorable

Materials
P5,456.63
Quantity P12,404.85 P6,948.22
Unfavorable
Variance

1a. Analysis

The unfavorable net materials variance indicates higher purchase costs incurred during the period

compared with the standard. The reasons may include the following:

● The accidental orders by the purchasing officer of LegitBiz Company, in which they bought

materials that they thought would be helpful to the operations, and,

● The lack of inventory control and rush orders caused by the unavailability of information

on when to restock the materials needed for the production.

● On the other hand, the adverse and zero material price variance is a result of the

assumption that the standard unit price of direct materials is equal to the actual cost per

unit of the materials.

 ● Lastly, the unfavorable Materials Quantity Variance is the result of the inefficiencies of the

production operation and sales department of the business entity. This includes the:

❖ tardiness of the employees that decreases the productivity and loses the

opportunity to generate sales and increased production, and,

❖ the unexpected occurrences such as blackouts and weather changes like

the rain.

1b. Recommendation

● On the problem of rush orders, the employee responsible for placing an order should

ensure that it is enclosed with the right specifications, quantity and price to avoid mistakes

and delayed operations.

● To address the issue on the incorrect orders, the business should identify the reorder point

to avoid stockouts.

● The entity should impose a stricter wage rate, for instance, the salary will be reduced for

every tardiness and idleness.

For the Month of August 31, 2018

Total Actual
Total Actual Quantity at Total Standard
Variance
Variance Type Cost (YTD Standard Price Cost (YTD
Amount
08/31/18 Data) (YTD 08/31/18 08/31/18 Data)
Data)

Net Materials P314.96

P2,947.07 P2,418.21
Variance Unfavorable

Material Price P106.95

P2,947.07 P2,840.12
Variance Unfavorable

Materials
P421.91
Quantity P2,840.12 P2,418.21
Unfavorable
Variance

1a. Analysis

The unfavorable Net Materials Variance show the small efforts of the employees to improve the

business performance. The reason for the inefficiencies include:

● The materials are bought in the market and the prices differ from time to time because the

business does not have a fixed supplier. In the event that there is a fixed supplier, they

increase their bargaining power which results to the high prices.

 ● Some materials are bought in smaller quantities, which loses the purchase discounts due

to smaller order sizes, which can be shown in the unfavorable Material Price Variance.

● Lack of planning on how to address the issue of the unexpected occurrences, weather

changes, and the inaccessibility of the location since the previous month.

1b. Recommendation

● To lessen the variances, a well-organized plan should be observed and carried out that

includes the budget to minimize unplanned expenses. Canvassing before making a

purchase can also be helpful.

● The option to purchase in small quantities but high ordering costs, and to purchase in large

quantities but high carrying costs should be weighed carefully and assess in which can

the business entity earn more.

For the Month of September 30, 2018

Total Actual
Total Actual Quantity at Total Standard
Variance Variance
Cost (YTD Standard Price Cost (YTD
Type Amount
09/30/18 Data) (YTD 09/30/18 09/30/18 Data)
Data)

Net Materials P259.05

P1,813.70 P2,072.75
Variance Favorable

Material Price P74.4

P1,813.70 P1,888.10
Variance Favorable

Materials
P184.65
Quantity P1,888.10 P2,072.75
Favorable
Variance

1a. Analysis

The Net Materials Variance for this month has increased to favorable in contrast with the two

preceding months. This may imply that:

● There may possibly be an overall decrease in the market price level.

● The Purchase Manager had a better price negotiation with the seller or the supplier.

● There is an implementation of better procurement practices such as having price

quotations from different suppliers.

● The business is able to avail to the purchase discounts on larger orders.

1b. Recommendation
 ● The business entity must continue to exhibit their current practices to retain the favorable

variances. However, they must not settle for the current agreement with the suppliers and

still continually look for ways to improve operations.

B. Labor

For the Month of July 31, 2018

Variance Type Total Actual Total Actual Total Standard Variance

Cost (YTD Quantity at Cost (YTD Amount
07/31/18 Data) Standard Price 07/31/18 Data)
(YTD 07/31/18
Data)

Net Labor P1,600.00 P1,279.16 -P320.84

Variance Unfavorable

Labor Rate P1,600.00 P1,267.85 -P332.15

Variance Unfavorable

Labor P1,267.85 P1,279.16

Efficiency P11.31
Variance Favorable

1a. Analysis

Ever since the business started its operation last July, it has been an issue that the employees

do not have commitment in performing their designated roles. The unfavorable Net Labor

Variance implies that:

● The business spent more on direct labor than what is expected and that the wage rate

system unfairly compensate the hardworking employees and those who just slack off.

● The workers take an amount of time that is more than the amount of time allowed by

standards, which resulted to the unfavorable direct labor variance.

1b. Recommendation

● The business should avoid being lenient in the implementation of the Attendance Policies

as what is stated in the Memorandum of Agreement and create a line between personal

and business relationships.

For the Month of August 31, 2018

Variance Type Total Actual Total Actual Total Standard Variance

Cost (YTD Quantity at Cost (YTD Amount
08/31/18 Data) Standard Price 08/31/18 Data)
(YTD 08/31/18
Data)
 Net Labor P1,600.00 P1,279.15 -P320.85
Variance Unfavorable

Labor Rate P1,600.00 P949.21 -P650.79

Variance Unfavorable

Labor P949.21 P1,279.15 P329.94

Efficiency Favorable
Variance

1a. Analysis

As the venture goes into its second month of its operation, it may overestimate the talent or

capabilities of its workers. For instance, one employee may not be experienced with increased

responsibilities or is tasked with an overly challenging project, and may take longer to complete

the job than the business expected. Thus, the inadequate delegation of staff by management can

cause unfavorable labor-price variances from the budgeted amount.

1b. Recommendation

● If estimated labor costs are lower than they should be due to unreliable historical trends,

inherent employee bias or any other reason, actual labor prices may be significantly

higher, causing an unfavorable variance from the budgeted amount. This should be

avoided by collecting more reliable datas from people

For the Month of September 30, 2018

Variance Type Total Actual Total Actual Total Standard Variance

Cost (YTD Quantity at Cost (YTD Amount
09/30/18 Data) Standard Price 09/30/18 Data)
(YTD 09/30/18
Data)

Net Labor P1,600.00 P1,279.17 -P320.83

Variance Unfavorable

Labor Rate P1,600.00 P1,087.07 -P512.93

Variance Unfavorable

Labor P1,087.07 P1,279.17 P192.10

Efficiency Favorable
Variance

1a. Analysis

● The business continually experience unfavorable Net Labor Variance which may indicate

that it still haven’t found its way to improve its system.

1b. Recommendation
 ● Even though there are only few owners and employees of the company, there should be

restructuring of the assigned roles for the individuals to perform better. There should

also be a strategy to entice and motivate the employees to contribute in the success of

the business.

C. Factory Overhead

For the Month of July 31, 2018

Total Actual
Total Actual Quantity at Total Standard
Variance
Variance Type Cost (YTD Standard Price Cost (YTD
Amount
07/31/18 Data) (YTD 07/31/18 07/31/18 Data)
Data)

Net Factory
-P2.39
Overhead P1,665.46 P1,663.07
Underapplied
Variance

Factory
Overhead P0.37
P1,665.46 P1,665.83
Controllable Favorable
Variance

Factory
Overhead -P2.76
P1,665.83 P1,663.07
Volume Unfavorable
Variance

1a. Assumption

The computations to solve the figures are based on the following assumptions:

1. The actual costs of Deep Fryer and Gas Stove are assumed to be the standard fixed

costs.

2. The actual factory overhead costs for the variable items are assumed to be the standard

factory overhead costs.

3. To calculate the depreciation, the lifespan of deep fryer is 9 months.

4. To calculate the depreciation, the lifespan of gas stove is 13 years or 156 months.

1b. Analysis

The Underapplied overhead occurs when overhead costs assigned to the product does not reach

the amount of the actual overhead costs. It is normal in manufacturing businesses because

overhead is applied to work in process using a predetermined overhead rate. Predetermined

overhead rate is computed at the beginning of the period using estimated information and is used

to apply manufacturing overhead cost throughout the period. This also implies that:

● There will be an increase of the business’ cost of goods sold.

● At the end of the time period, there will be an increasing expenses on the income

statement and decreasing the period's net income.

● This may also be caused by the inefficient purchasing and production processes of the

business during their first month of operating.

1c. Recommendation

● The costs should be examined why it is higher than expected because it will affect the

operations of the business.

● Also, the person responsible should also be identified to know who will be accountable

and an efficient plan should be taken to keep cost under control in the future.

For the Month of August 31, 2018

Variance Type Total Actual Total Actual Total Standard Variance

Cost (YTD Quantity at Cost (YTD Amount
08/31/18 Data) Standard Price 08/31/18 Data)
(YTD 08/31/18
Data)

Net Factory P493.91 P186.81 -P307.10

Overhead Underapplied
Variance

Factory P493.91 P457.42 -P36.49

Overhead Unfavorable
Controllable
Variance

Factory P457.42 P186.81 P270.61

Overhead Favorable
Volume
Variance

1a. Assumption

The computations to solve the figures are based on the following assumptions:

1. The actual costs of Deep Fryer and Gas Stove are assumed to be the standard fixed

costs.
 2. The actual factory overhead costs for the variable items are assumed to be the standard

factory overhead costs.

3. To calculate the depreciation, the lifespan of deep fryer is 9 months.

4. To calculate the depreciation, the lifespan of gas stove is 13 years or 156 months.

1b. Analysis

The figures for August indicated that it is Underapplied, and is subject to be recorded as prepaid

expense in the balance sheet. It also implies that:

● The above Factory Overhead Volume Variance is significant because it indicates that

the degree of production was above to what what was planned. This may be contributory

to the small improvements of the purchasing operations.

● The supervision and weak control of expenditures should also be taken consideration in

the evaluation of the variances.

1c. Recommendation

● The costs should be examined why it is higher than expected because it will affect the

operations of the business.

● Also, the person responsible should also be identified to know who will be accountable

and an efficient plan should be taken to keep cost under control in the future.

For the Month of September 30, 2018

Variance Total Actual Cost Total Actual Total Standard Variance

Type (YTD 09/30/18 Quantity at Cost (YTD Amount
Data) Standard Price 09/30/18 Data)
(YTD 09/30/18
Data)

Net Factory P1396.06 P284.40 -P1111.66

Overhead Underapplied
Variance

Factory P1396.06 P465.62 -P930.44

Overhead Unfavorable
Controllable
Variance

Factory P465.62 P284.40 P181.22

Overhead Favorable
Volume
Variance

1a. Assumption

The computations to solve the figures are based on the following assumptions:
 1. The actual costs of Deep Fryer and Gas Stove are assumed to be the standard fixed

costs.

2. The actual factory overhead costs for the variable items are assumed to be the standard

factory overhead costs.

3. To calculate the depreciation, the lifespan of deep fryer is 9 months.

4. To calculate the depreciation, the lifespan of gas stove is 13 years or 156 months.

1b. Analysis

The figures for September indicated that it is Underapplied, and is subject to be recorded as

prepaid expense in the balance sheet. It also implies that:

● The unfavorable Factory Overhead Controlled Variance indicates that there is still

inefficiency in the production and management of the costs.

1c. Recommendation

● The costs should be examined why it is higher than expected because it will affect the

operations of the business.

● Also, the person responsible should also be identified to know who will be accountable

and an efficient plan should be taken to keep cost under control in the future.

Prepared by:

____________________ ____________________
Abuel, Rey Joyce B. Adanza, Gina H.

____________________ ____________________
Daigdigan, Ivy Mae L. Macion, Kim Nichole L.
Discussed with:

____________________ ____________________
Arango, Maria Kirshey T. Bacang, Jannah Joy C.

____________________ ____________________
Chio, Nathaniel John B. Daya, Karl Anro F.

____________________ ____________________
Olape, Eva Mae C. Peñaranda, John Carlo L.

____________________
Ratunil, Danica Jean I.