Your Company Hired a Summer Student as an Accounting Intern

Essay

Your company hired a summer student as an accounting intern to prepare variance analysis for the plant manager (the student's father), so that the entire organization could become more effective and efficient. Up to this time, the company used a budget but only one that specified sales and production in units, and each department gauged and reported on its own performance based on historical rules of thumb developed over the years. The plant manager instructed every department manager to assist the new accountant as achieving favourable results would ensure he got a good bonus. For the month of May, the student met with the department heads of each functional area, obtaining from them the data and estimates to come up with: standard costs and prices; and, standard direct material usage and standard direct labour usage. Then in June, July and August the student collected; and, analyzed the variance results, and prepared a report for the plant manager. The report indicated favourable variances in virtually every functional area, allowing the plant manager to receive a larger bonus than usual.
Required:
Comment on the above process, in terms of variance analysis.