PROFORMA FOR WRITTEN PART

1. Direct material efficiency variance
The firm was faced with limited storage space at their premises and were unable to relocate or rebuild their premises or use Just-In-Time inventory. Therefore storage costs increased; this increased the DMs costs since storage is part of in-transit costs, which are considered part of DMs cost. Thus, the Materials Efficiency Variance calculated as $800 unfavourable.
DL efficiency variance
Change in the layout of the manufacturing space should reduce the standard time per product in the long run. Besides, new materials are easier to work with in terms of both cutting and sewing, which means workers spend less time. This is reflected in a favourable calculation of LEV at
ABC assigns more costs as direct costs, whereas traditional costing assigns more indirect costs.

The differences between traditional and ABC can be seen in the books of Sneakers Unlimited. Under traditional costing, Sneakers Unlimited used an OH rate of $7.50 per DL hour for all three of their sneaker lines. This amounted to total OH of $24,187.50 for Dance sneakers, $9,375 for Run sneakers, and $9,450 for Walk sneakers. On the contrary, under ABC, the total OH for Dance sneakers was $20,719.04, $8,258.84 for Run sneakers, and $14,962.12 for Walk sneakers. These differences are important as they highlight the fact that, when Sneakers Unlimited uses ABC, the cost of their sneakers are more accurate than under traditional costing.

The cause of these differences is the fact that under ABC, Sneakers Unlimited uses four OH cost pools to assign costs directly, whereas under traditional costing Sneakers Unlimited uses only one cost pool based on DL hours.

Pressure from other competitors has had an impact on the firm in their product pricing. ABC the firm sets prices based on mark-up on total cost, the firm needs to know the cost of their product, in order to set an accurate price. If the firm does not accurately calculate its costs, it could overprice or underprice products. The results of overcosting would be that customers would not purchase products from the firm,