190 views

Uploaded by Anthony Malone

Acct Chapt 17

Acct Chapt 17

© All Rights Reserved

- Cost Accounting Solution
- Chap 013
- Chapter 14 Exercise Solutions
- Chap 012
- Homework Answers
- Accounting for Mana Control Ch5 Example
- ACCY121FinalExamInstrManualchs9!11!13 16 Appendix
- Second Set
- SMChap009
- Wiley - Chapter 9: Inventories: Additional Valuation Issues
- Chapter 9 Exercise Solutions
- Chapter 16 Fundamentals of Variance Analysis
- Chapter 4 Cost Accounting
- Chapter 16 - Solution Manual
- Chapter 10
- Chapter 14 Business Unit Performance Measurement
- Strategic Cost Management Chap007
- Cost Chapter 8
- Chap 008
- Practice Problems for the Final - 2_updated

You are on page 1of 33

17

17-1.

False. Variances simply represent differences between plans and actual outcomes.

Capturing these variances can provide useful information regardless of whether

inventories exist. Knowledge about differences between plans and actual outcomes can

help managers improve planning or take steps to improve operations.

17-2.

Variances are usually expensed as a period cost (e.g., charged to Cost of Goods Sold).

Variances can also be prorated to accounts according to the standard cost balances in

each of the accounts. Hence, a materials price variance recorded at the time of purchase

would be prorated to Materials Inventory, Materials Efficiency Variance (because this

variance is initially recorded at standard cost), Work in Process, Finished Goods and Cost

of Goods Sold according to the current year standard cost balances in those accounts.

17-3.

The industry volume variance measures the impact of differences between actual and

expected industry sales volume on the companys sales activity variance. Use of industrywide data helps explain changes in volume in terms of what is happening to the industry.

17-4.

Efficiencies can be realized for costs only. The sales activity variance captures the effect

on profit resulting from the difference between actual and budgeted sales.

17-5.

Some possible decisions for which the market share variance would be useful include

marketing (advertising) decisions, investment decisions, and product line portfolio

decisions.

17-1

17-6.

If a company has two or more products, a mix variance can arise even if the net effect of

all variances is zero. It might be very useful to learn about the mix variance because if the

mix is changing, the company might need to change production and/or marketing

strategies to meet the change in mix. The U.S. automobile industry was facing rising

revenues and rising volumes but, unfortunately, there were falling profits because buyers

were purchasing smaller cars that had lower profit margins for the manufacturers.

17-7.

Examples include:

Steel mills which can process both new steel and recycled scrap

Chemical companies

17-2

17-8.

By recognizing the materials price variance at the time of purchase, management captures

any difference between actual materials cost and the standard costs as reflected in the

budget as those costs are incurred. If the price variance is not reflected until the time of

use, the effect of price changes might not be recognized until the materials are removed

from the raw materials inventory and placed into work in process. This could be a

substantial time delay. If decisions need to be made to compensate for the effect of

materials price changes, it would seem that the sooner the information comes to

management's attention, the better the opportunities to react to the information.

17-9.

As with all firms, sports teams budget for revenues from different sources, in this case

ticket sales and concessions. Depending on the event, a different customer mix might lead

to a difference in the proportion of revenues from these two sources.

17-10.

In this situation the company is really selling just one product so a mix variance would not

be meaningful.

17-11.

In a hospital, as in other professional firms, billing rates vary with the level of the

professional person performing services. Hence, a physicians time is billed at a higher

rate than an interns time. Even though the volume of hours billed might be the same, if

the mix of physician to intern time is different there will be differences in revenues (and,

most likely in profits as well).

17-12.

Salary rates vary according to the classification of the service providers (e.g., nurses pay

is higher than nurse practitioners pay), and the hospital will budget a certain amount of

time for each classification. Thus, a labor mix variance can be calculated to show if the

appropriate personnel were used in a particular period or in a particular unit (e.g.,

intensive care). An unfavorable mix variance would suggest that nurses were doing work

that nurse practitioners should have done.

17-13.

Disagree. The purpose of variance analysis is to identify items that are different from what

we expected (budgeted). Therefore, we should be as interested in favorable variances as

in unfavorable variances. Even if there is not a problem (for example, managers hiding

expenses), we would still like to know where things are working well so that we can

implement them in other areas of the organization.

17-3

Solutions to Exercises

17-14. (15 min.)Variable Cost Variances Where Materials Purchased And Used Are

Not Equal: Golden Company.

Flexible

Actual

Budget

Inputs at

(Standard

Actual

Price

Standard

Efficiency

Allowed for

Costs

Variance

Price

Variance

Good Output)

Purchase

$174,474

$172,530

Computations

$1,944 U

7.86 x 14,000

= $110,040

$115,020

Usage

Computations

$4,980 U

17-15. (15 min.) Industry Volume And Market Share Variances: Kays Auto Products.

Flexible Budget

(SCM x AQ)

Market

Share

Variance

Standard Contribution

Margin Times

Budgeted Market

Share Times Actual

Industry Volume

Industry

Volume

Variance

Master Budget

(SCM x SQ)

(SCM x ASQ)

$4 x 45,000

$4 x 20% x 300,000

$4 x 20% x 250,000

= $180,000

= $240,000

= $200,000

$60,000 U

$40,000 F

$20,000 U

17-4

a. 15,000 fewer units = 52,500 fewer units 37,500 more units.

b. 900,000 units. [1,050,000 (b)] x 25% = 37,500 units.

c. 25% (from industry volume line).

d. 20%. [(d) 25%] x 1,050,000 = 52,500 fewer units.

e. 1,050,000 units (from industry volume line).

17-17. (20 min.)Industry Volume And Market Share VariancesMissing Data.

a. 20,000 fewer units = 100,000 more units activity variance 120,000 more units market

share variance.

b. 3,000,000 units (from market share line).

c. 8% (from market share line).

d. 3,250,000. [3,000,000 d] x 8% = 20,000 fewer units.

e. 12%. (e 8%) x 3,000,000 = 120,000 more units.

17-18. (20 min.)Sales Mix And Quantity Variances: AAA Electronics.

a. and b.

The actual prices are not relevant here. The mix and quantity variances are based on

standard (budgeted) contribution margin per unit.

Flexible Budget

AQ x (SP SV)

Mix

Variance

Quantity

Variance

Master Budget

+ 9,000 x ($249.50 -

= $2,387,500

=$2,185,776

$100.00)

$201,724 F

= $2,535,500

$349,724 U

$148,000 U

Activity Variance

17-5

a. and b.

Mix

Variance

Flexible Budget

AQ x (SP SV)

Quantity

Variance

Master Budget

= $4,560,000

=$4,480,000

= $4,000,000

$80,000 F

$480,000 F

$560,000 F

Activity Variance

17-6

a. and b.

Flexible Budget

AQ x (SP SV)

Mix

Variance

Quantity

Variance

Master Budget

= $31,104

=$31,680

= $35,200

$576 U

$3,520 U

$4,096 U

Activity Variance

17-7

a. and b.

Efficiency Variance

Actual

(AP x AQ)

Material:

Twinkle

Purchase

Price

Variance

$18 x

44,000 =

$792,000

Mix

Variance

(SP x AQ)

Yield

Variance

= $20 x 40,000

= $800,000

$20 x 44,000

= $880,000

$88,000 F

(SP x ASQ)

$80,000 U

Flexible

Production

Budget

(SP x SQ)

= $20 x 40,000

= $800,000

$-0-

Star

$32 x 76,000

= $2,432,000

= $30 x 80,000

= $2,400,000

$30 x 76,000

= $2,280,000

$152,000 U

$120,000 F

= $30 x 80,000

= $2,400,000

$-0-

Total

$3,224,000

$3,160,000

$64,000 U

$3,200,000

$40,000 F

= $3,200,000

$-0-

Production of 2,000 units should require 120,000 units of input (= 2,000 x 20 + 2,000 x

40). Actual usage was 120,000 units (= 44,000 + 76,000), so there was no yield variance.

17-8

a. and b.

The actual purchase prices were $7.75 (= $51,150 6,600) for Weed-X and $21.00 (=

$110,880 5,280) for Pest-O.

Efficiency Variance

Actual

(AP x AQ)

Material:

Weed-X

Purchase

Price

Variance

$7.75 x

6,600

= $51,150

Mix

Variance

(SP x AQ)

Yield

Variance

$8 x (0.005 x

1,080,000)

= $8 x 5,400

= $43,200

$8 x (1/2 x 11,880)

= $8 x 5,940

= $47,520

$8 x 6,600 =

$52,800

$1,650 F

(SP x ASQ)

$5,280 U

Flexible

Production

Budget

(SP x SQ)

$4,320 U

Pest-O

$21 x 5,280

= $110,880

$20 x 5,280

= $105,600

$5,280 U

= $20 x 5,940

= $118,800

$13,200 F

$20 x (0.005 x

1,080,000)

= $20 x 5,400

= $108,000

$10,800 U

Total

$162,030

$158,400

$166,320

$3,630 U

$7,920 F

= $151,200

$15,120 U

17-9

17-23. (35 min.) Labor Mix and Yield Variance: Matts Eat N Run.

a. and b.

Efficiency Variance

Actual

(AP x

AQ)

Purchase

Price

Variance

Labor:

Skilled

Mix

Variance

(SP x AQ)

= $15 x 5,250

= $78,750

$15 x 6,000

= $90,000

$92,000

$2,000 U

(SP x

ASQ)

$11,250 U

Flexible

Production

Budget

(SP x SQ)

Yield

Variance

= $15 x 6,000

= $90,000

$11,250

F

d

$7.50 x

15,000 =

$112,500

$180,000

= $7.50 x 15,750

= $118,125

$67,500 U

$5,625 F

$7.50 x (6/60 x

180,000)

= $7.50 x 18,000

= $135,000

$16,875 F

Total

$272,000

$202,500

$196,875

$69,500 U

$5,625 U

= $225,000

$28,125 F

17-10

Flexible Budget

(based on

actual of

6,900 hours)

Revenue................................

Costs:

Professional salaries..........

Other variable costs...........

Fixed costs.........................

Total costs......................

Profit......................................

a

b

c

d

$862,500 =

$431,250 =

$117,300 =

6,900 hrs.

6,000 hrs.

6,900 hrs.

6,000 hrs.

6,900 hrs.

6,000 hrs.

$862,500a

431,250b

117,300c

180,000d

$728,550

$133,950

x $750,000

x

$375,000

$102,000

17-11

Flexible Budget

(based on

actual of

6,900 hours)

Revenue................................ $862,500

Costs:

Professional salaries..........

431,250

Other variable costs...........

117,300

Fixed costs.........................

180,000

Total costs...................... $728,550

Profit...................................... $133,950

17-12

Sales

Activity

Variance

Master Budget

(based on

budgeted 6,000

hours)

$112,500 F

$750,000

56,250 U

15,300 U

________

$71,550 U

$ 40,950 F

375,000

102,000

180,000

$657,000

$ 93,000

(1)

(2)

(3)

(4)

(5)

Flexible

Sales

Actual

Cost

Price

Budget

Activity

(6,900 hrs.)

Variances

Variances

(6,900 hrs.)

Variance

Revenue.............................$825,000

$37,500 U

$862,500

$112,500 F

Professional salaries.......... 465,000

$33,750 U

431,250

56,250 U

Other variable costs........... 108,000

9,300 F

117,300

15,300 U

Fixed costs......................... 174,000

6,000 F

180,000

Profit...................................$ 78,000

$18,450 U $37,500 U

$ 133,950

40,950 F

17-13

(6)

Master

Budget

(6,000 hrs.)

$750,000

375,000

102,000

180,000

$ 93,000

17-27. (20 min.) Sales Price and Activity Variances: Dylan & Father.

Actual

(AP x SQ)

Partner

Price Variance

Flexible Budget

(SP SV) x SQ

$770 x 4,800 hours

$3,612,000

= $3,696,000

$84,000 U

Staff

$3,738,000

= $3,712,800

$25,200 F

Flexible

Budget

AQ x (SP SV)

Master Budget

Mix Variance

20,400 x ($182 - $98)

= $3,662,400

a

b

[($84 x (20,790 25,890) x 25,200]

= $3,715,233

$52,833 U

$101,727 U

$154,560 U

Activity Variance

Quantity

Variance

17-14

SQ x (SP SV)

5,100 x $406 +

20,790 x $84

= $3,816,960

Actual Costs

Price

Variance

Actual Inputs at

Standard Price

Efficiency

Variance

$12 x 3,000 =

$36,000

$45,240

$9,240 U

$12 x (14,000 4)

= $42,000

$6,000 F

17-15

Flexible Budget

(Standard

Allowed)

Solutions to Problems

a. Price Variance = (Actual Price Budgeted Price) x Actual Quantity:

Price

= (Actual Price Budgeted Price) x Actual Quantity

Variety:

Variance

Sauvignon

$2,000 F =

($7.25 $7.00)

x

8,000

Blanc

Chardonnay

900 U =

($8.10 $8.25)

x

6,000

Riesling

3,850 F =

($7.10 $6.75)

x

11,000

$4,950 F

b. and c.

The actual prices are not relevant here. The mix and quantity variances are based on

standard (budgeted) contribution margin per unit.

Mix

Variance

Flexible Budget

AQ x (SP SV)

Quantity

Variance

Master Budget

= $51,500.00

=$50,937.50

= $52,975.00

$562.50 F

$2,037.50 U

$1,475 U

Activity Variance

17-16

Hint for working the problem: Use sales revenue as the basis for measuring volume.

Purchases

Actual

Variances

Sales revenuea....................................................

$1,200

Variable costs:

Purchases........................................................

780

$60 U

Hourly wages...................................................

60

Franchise fee...................................................

36

Utilities.............................................................

76

Total variable costs.............................................

$952

$60 U

Contribution margin.............................................

$248

$60 U

Fixed costs: ........................................................

Advertising.......................................................

100

Depreciation.....................................................

50

Lease...............................................................

30

Salaries............................................................

30

Total fixed costs..................................................

$210

Operating profit....................................................

$ 38

$60 U

($000)

Marketing &

Administrative

Variances

$8 F

$8 F

$8 F

$8 F

17-17

Flexible

Budget

$1,200

720 b

60 c

36 d

84 e

$900

$300

100

50

30

30

$ 210

$90

Activity

Variance

$200 F

Master

Budget

$1,000

120 U

10 U

6U

14 U

$ 150 U

$ 50 F

600

50

30

70

$750

$250

$50 F

100

50

30

30

$ 210

$ 40

17-30. (continued)

a Sales revenue is used as the basis of volume measurement because there are no price changes.

b

$600

x $1,200

$1,000

c

$50

x $1,200

$1,000

d

$30

x $1,200

$1,000

e

$70

x $1,200

$1,000

17-18

Incidental office costs comprise the variable costs. Salaries and the fixed office costs are

all fixed. Variance analysis for the two classes of overhead is as follows:

Correspondence,

Supplies, etc.

Actual Costs

$10,800 x 1.12

= $12,096

Combined

Price and

Efficiency

Variance

Flexible Budget

(Standard Allowed

for Actual Output)

$45 x 240

= $10,800

$1,296 U

Loan processor and

other costs

0.5 x ($60,000 +

$50,000 + $130,000)

= $120,000

$55,000 + $63,000

= $118,000

$2,000 F

Optional:

If computed, the production volume variance would be:

Budget

$120,000

a 0.5

$8,000 F

17-19

Applied

$120,000 x (240

225) = $128,000

Actual

Costs

Price

Variance

Actual

Inputs at

Standard

Price

Efficiency

Variance

New

Accounts

$572,250

Flexible

Budget

$30 x

19,200

accounts

=

$576,000

(Ignored)

$3,750 F

Account

Maintenanc

e

$18,000

Master

Budget

$30 x

20,000

accounts

=

$600,000

$24,000 F

$0.45 x

45,000

=

$20,250

$17,700

$300 U

Activity

Variance

$2,550 F

17-20

$0.45 x

43,200

= $19,440

$810 U

17-33. Revenue Analysis Using Industry Data and Multiple Product Lines: Peninsula

Candy Co.

a. Sales price and activity variances.

(AP SV) x AQ

Flexible

budget

(SP SV) x AQ

Master

budget

(SP SV) x SQ

$1,162 $915b

= $247

(1,600 x $.03a)

+ (2,000 x $.04)

+ (4,200 x $.035)

= $275

$1,200 $920

= $280

a Unit

$28 U

$5 U

Sales price

variance

Sales activity

variance

b

$915 = [1,600 x ($140 2,000) + 2,000 x ($320 2,000) + 4,200 x ($460 4,000)].

b. Two solutions are possible when calculating the market share variance, depending

upon the figure used for the left column. The examples in the text use the flexible

budget amount. However, those examples involve only one product, whereas this

problem has three products, and therefore a mix issue is present. In this situation,

another way to solve the problem would be to use the standard price times the actual

quantities at the standard mix. Both alternatives are given on the following page.

17-21

17-33b.

(continued)

Contribution margin variance

Actual Quantities at

Standard Mix and

Standard Prices

Industry

Effect

$280 x (76,000 80,000)

= $266

$273a

Master

Budget

$280

$7 F

$14 U

Market Share

Variance

Industry Variance

Flexible Budget

$275

$7 U

Quantity

Variance

Industry Effect

$266

$9 F

$5 U

Master Budget

$280

$14 U

Activity Variance

The $2 difference in the market share variance is explained by the difference in the mix.

a $273 = [7,800 x (2,000 8,000) x ($60 2,000) + 7,800 x (2,000 8,000) x ($80 2,000) + 7,800 x (4,000 8,000) x

($140 4,000)].

A shortcut is to multiply the actual number of bars by the average contribution margin per bar in the master

budget: 7,800 bars x ($280 8,000 bars) = $273.

17-22

17-34. (20 min.)Sales Mix And Quantity Variances: Peninsula Candy Co.

Mix

Quantity

Flexible Budget

Variance

Variance

(SP SV) x AQ

(SP SV) x ASQ

(1,600 x $.03)

2,000

(7,800 x

x $.03)

8,000

+ (2,000 x $.04)

+

2,000

(7,800 x

x $.04)

8,000

+ (4,200 x $.035)

+

4,000

(7,800 x

x $.035)

8,000

= $275

= $273

$2 F

$7 U

$5 U

Activity Variance

17-23

Master Budget

(SP SV) x SQ

(2,000 x $.03)

+ (2,000 x $.04)

+ (4,000 x $.035)

= $280

17-35. (45 min.) Materials Mix And Yield Variances: Houston Corporation.

a. and b.

Material

Efficiency Variance

Actual

Purchase

(AP x

Price

AQ)

Variance

Flexible

Mix

(SP x AQ)

Variance

Z-Alpha

(SP x ASQ)

a

Yield

Production

Variance

Budget

$9 x (.48 x

$423,360

$9 x

104,400) =

50,400 =

$9 x 50,112

$9 x (600 x 80)

$453,600

= $451,008

= $432,000

$30,240 F

$2,592 U

$19,008 U

$21,600 U

Z-Beta

$12 x (.36 x

$400,464

$12 x

104,400) =

37,040 =

$12 x 37,584

$12 x (450 x

$444,480

= $451,008

80) = $432,000

$44,016 F

$6,528 F

$19,008 U

$12,480 U

Z-Gamma

$417,216

$10,176 U

$24 x

$24 x (.16 x

16,960

104,400) =

$24 x 16,704

$24 x (200 x

$407,040

= $400,896

80) = $384,000

$6,144 U

$16,896 U

$23,040 U

Standard mix: .48 = 600 1,250; .36 = 450 1,250; .16 = 200 1,250;

17-24

17-35. (continued)

Efficiency Variance

Purchase

Flexible

Price

Actual

Total

Variance

Mix

(SP x AQ)

Variance

(SP x ASQ)

Yield

Production

Variance

Budget

$1,241,04

0

$1,305,120

$64,080 F

$1,302,912

$2,208 U

$54,912 U

$57,120 U

17-25

$1,248,000

17-36. (30 min.) Labor Mix and Yield Variances: Davenport Construction Associates

a. and b.

Efficiency Variance

Purchase

Flexible

Price

Actual

Variance

Mix

(SP x AQ)

($26 x 660) +

($24 x 660) +

($23 x 780) +

($15 x 432)

= $41,580

$2,880 U

Variance

(SP x ASQ)

Yield

Production

Variance

Budget

($24 x 600) +

($21 x 780) +

+ ($21 x 1/3 x

($21 x 600) +

($15 x 432)

($15 x 600) =

= $38,700

x 1,872) = $37,440

$36,000

$1,260 U

$1,440 U

$2,700 U

17-26

17-37. (20 min.)Derive Amounts for Profit Variance Analysis: Aqua Clean, Inc.

Hint: Use last months actual as master budget.

Actual (based

on actual

Variable

activity of

Cost

161

Variance

cleanings)

Sales revenue.....................................................

$22,800

Less:

Variable costs..................................................

5,220

$93 F

Contribution margin.............................................

$17,580

$93 F

aLast month price =

$22,680

140 cleanings

Sales

Price

Variance

$3,282 U

$3,282 U

Flexible Budget

(based on

actual activity

of 161

cleanings)

$26,082 a

5,313 b

$20,679

Sales

Activity

Variance

Master Budget

(based on a

prediction of

140 cleanings)

$3,402 F

$22,680

693 U

$2,709 F

4,620

$18,060

= $162

bLast month unit variable cost = $4,620 140 cleanings =

Although the two months contribution margins are similar, there are significant variances. This illustrates the need to

consider variance analysis even if bottom-line dollar amounts are similar to budget. Activity levels, prices, and other factors

might offset each other, but individually be significant.

The number of cleanings increased by 21, which increased profit by $2,709. However, the actual average price was $141.61

(= $22,800 161 cleanings) so the average price per cleaning decreased by $20.39 ($162.00 $141.61). As a result, profit

decreased by $480.

17-27

Flexible budget is based on actual activity of 94,500 miles for costs that vary per mile.

a. $8,505;$10 over budget.

$6,750 x (94,500 miles 75,000 miles) = $8,505

b. $756;$4 over budget.

$600 x (94,500 miles 75,000 miles) = $756

c. $5,000; equal to budget.

The assumption is that, within the relevant range, this is a fixed cost.

d. Decreased unit fixed costs.

Assuming that insurance, salaries and benefits, and depreciation are fixed costs, the

budgeted amount is $0.1387 per mile [($1,000 + $5,000 + $4,400) 75,000 miles].

The actual amount is $0.1129 per mile for 94,500 actual miles, which is a drop of

$0.0258. This is 84.3% of the total decrease from $0.2427 to $0.2121.

17-28

Solutions to Case

The following solution is based on a report by Tom Terpstra.

Elmo's problem is that he thinks that the graph and the income statement measure the

same thing. Otto should have told him that they do not. The income statement presents

actual costs in a full-absorption costing format, while the profit graph is based on standard

costs in a variable costing format. These differences account for the difference in the profit

measurement.

Because the profit graph is based on standard costs, the profit it shows will be the actual

profit only in those very rare cases when the variances net out to zero. Racketeer has

some significant variances listed on the income statement, so Elmo should expect that the

actual profit would differ from the profit on the graph. These variances are:

Material................................................................

$490 U

Labor...................................................................

392 U

Overhead.............................................................

190 U

Selling and administrative...................................

300 F

Total.....................................................................

$772 U

The overhead amount differs from the figure on the income statement, because the

income statement overhead variance includes a production volume variance of $470

(= $.47 x 1,000). But that variance does not reflect a difference between actual and budget

or standard costs when fixed manufacturing costs are not unitized.

The other part of the difference between the two profit figures is explained by the

difference in accounting methods. Variable costing expenses fixed costs when they are

incurred. With full-absorption, the fixed costs are assigned to the units produced, and then

expensed in the period in which the units are sold. Racketeer treats each racket as having

a fixed cost of $.47. For the 10,000 rackets sold, the fixed cost expense is $4,700 under

full-absorption costing. Additionally, the production volume variance of $470 is also

expensed during this period. Thus, $5,170 in fixed costs (aside from price variances) was

deducted from income on the income statement. Under variable costing, the only fixed

cost to be expensed is the standard cost for the period of $3,760 (also aside from price

variances). So, the use of different accounting methods results in a profit difference of

$1,410.

(Before Elmo starts to complain about the accountants' use of full-absorption, one should

remind him that, in those months when production exceeds sales, the full-absorption

method would expense less fixed costs than variable costing, so it evens out in the long

run.)

17-29

17-39. (continued)

Profit per chart.....................................................

$20,940

Less:

Cost variances................................................. 772

Additional fixed costs in full-absorption........... 1,410

Profit per Income Statement...............................

$18,758

Besides failing to explain the profit graph, Otto also failed to set up a format to take

advantage of the standards he developed. The company should set up a chart showing

the actual results, the flexible budget, and the master budget. This would provide

information concerning the profit changes in relation to the change in sales volume.

Additionally, the manufacturing variances could be analyzed in greater detail, as shown in

Exhibits A and B on the following pages.

17-30

17-39. (continued)

Exhibit AComparison of Master Budget to Actual Results.

Actual

Sales......................................... $90,000

Less Variable Costs:

Materials................................ 37,990

Labor..................................... 19,392

Overhead...............................

1,440

Contribution Margin................... $31,178

Less Fixed Costs:

Manufacturing........................

3,810

Selling and Administrative.....

7,200

Operating Profit......................... $20,168

Manufacturing

Variance

Selling and

Administrativ

e Variance

0

$ 490 U

392 U

140 U

$1,022 U

50 U

$1,072 U

$300

$300

17-31

F

F

Variance Budget Variance

0

$90,000 $18,000 F

7,500

3,800

260

$6,440

Master

Budget

$72,000

37,500

19,000

1,300

$32,200

U

U

U

F

30,000

15,200

1,040

$25,760

3,760

7,500

$20,940 $6,440 F

3,760

7,500

$14,500

17-39. (continued)

String

Actual Costs

$.025 x 175,000

= $4,375

Price

Variance

Actual Inputs

at Standard

Price

$.03 x 175,000

= $5,250

$875 F

Frames

$3.15 x 7,100 =

$22,365

$3.15 x 7,100 =

$22,365

$9.80 x 900

= $8,820

$9.60 x 900 =

$8,640

$5.80 x 840 =

$4,872

$9.60 x .125 x

7,000 = $8,400

240 U

$5.60 x 840 =

$4,704

$168 U

Variable

Overhead

$3.15 x 7,000 =

$22,050

315 U

$180 U

Unskilled

Labor

$5.60 x .125 x

7,000 = $4,900

196 F

Total Variable

Overhead

Variance

$1,050

Flexible Budget

$.03 x 20 x 7,000

= $4,200

1,050 U

$-0Skilled

Labor

Efficiency

Variance

($.10 + $.03)

x 7,000 = $910

$140 U

Fixed

Overhead

Actual Costs

Price

Variance

$3,810

Budget

$.47 x 8,000 =

$3,760

$50 U

Production

Volume

Variance

470 U

17-32

Applied

($.47 x 7,000)

= $3,290

17-39. (continued)

The variance breakdown in Exhibits A and B highlights the areas that Elmo and Otto

should research. One area involves the strings. Is the combination of a favorable price

variance and unfavorable efficiency variance an indicator that low quality string was

purchased? Another point for investigation is the apparent waste of 100 racket frames. Is

there something in the production process that causes frames to break? Or are the

standards unrealistic? A third area is the labor efficiency variances. Why are the skilled

workers spending more time than budgeted, while the unskilled are spending less?

Finally, the relationship between labor efficiency and materials efficiency variances is

worth investigating, because use of substandard materials might result in an unfavorable

labor efficiency variance. These are the types of questions that should be raised as a

result of this variance analysis.

17-33

- Cost Accounting SolutionUploaded byniggy.fan
- Chap 013Uploaded byAnthony Malone
- Chapter 14 Exercise SolutionsUploaded byCarol Robinson
- Chap 012Uploaded byAnthony Malone
- Homework AnswersUploaded byenergizerabby
- Accounting for Mana Control Ch5 ExampleUploaded bydmorey213
- ACCY121FinalExamInstrManualchs9!11!13 16 AppendixUploaded byArun Mozhi
- Second SetUploaded byKenny Mulvenna
- SMChap009Uploaded byWiddic
- Wiley - Chapter 9: Inventories: Additional Valuation IssuesUploaded byIvan Bliminse
- Chapter 9 Exercise SolutionsUploaded byQasim Ali
- Chapter 16 Fundamentals of Variance AnalysisUploaded byarif420_999
- Chapter 4 Cost AccountingUploaded byleelee0302
- Chapter 16 - Solution ManualUploaded bythriu
- Chapter 10Uploaded bySrikanth Pothiraaj
- Chapter 14 Business Unit Performance MeasurementUploaded bycadriap
- Strategic Cost Management Chap007Uploaded byArini Thiyasza
- Cost Chapter 8Uploaded bysamantha_t
- Chap 008Uploaded byjjseven22
- Practice Problems for the Final - 2_updatedUploaded bymaroo566
- Illustrative Problem on Master BudgetingUploaded bySumendra Shrestha
- TN14_4eUploaded byAarti J
- HelloUploaded byShosho
- ZaunerUploaded byelvarg09
- sericultureUploaded byRavi Kumar
- Operating-Costing final.docxUploaded byAmit Dovari
- Question 3_CVP AnalysisUploaded byMsKhan0078
- YvetteUploaded byVSRI1993
- 31.Job Costing [Exercise Questions]Uploaded byHarinesh Pandya
- 9. Decision MakingUploaded byGelyn Cruz

- 4082-1Uploaded bysabatino123
- BANKOK Problems of Urbanisation in an LEDCUploaded by3alliumcourt
- Franz−Keldysh Effect in GaN NanowiresUploaded byBhabani Sankar Swain
- Parts of a ComputerUploaded byjcee2008
- Career Planning and DevelopmentUploaded bydahiru2011
- An Automation PCI Allocation Method for eNodeB and Home eNodeB CellUploaded byurfriendlyjoe
- Two Penniless Princesses by Yonge, Charlotte Mary, 1823-1901Uploaded byGutenberg.org
- GraphiteUploaded byFrancesca Pisu
- hot dip galvanizingUploaded byapply19842371
- GooglePlaySupportedDevices-Sheet1Uploaded byZinou21
- MB W211 US Audio 50 Operators ManualUploaded byselereak
- 19640004014Uploaded byKarpincho3
- thebookshouse@gmail.com, Order All Books, Law, Legal, Taxation, Accounting, Medical, allUploaded bybooksnall
- Adams Bbq Restaurant Scope Statement v3Uploaded byabdessamad bouiry
- en.DM00103319Uploaded byAmine Benmansour
- Romberg SlidesUploaded byTeferi
- Analyst -BRIDGEi2i Job DescriptionUploaded byman007yadav
- Agan Jr vs Philippine International Air Terminals Co (PIATCO) (1)Uploaded byMariel Joyce Portillo
- Ems 2064. Design and Development of Obstacle Sensing RobotUploaded bysarad43
- 4. Air Canada vs. CIRUploaded byJose Emmanuel Dolor
- Student Guide to RTU 2016Uploaded bycloudman81
- ExecuNet LESSONS FROM LEADERS: Building Your Personal Leadership BrandUploaded byShahid N. Shah
- Standard for Wood Products Structural Glued Laminated Timber ANSI A190.1 2012Uploaded byLuis Hernandez
- Ass in GnmentUploaded byManish Padhra
- Lesson PlanUploaded byuGWati
- Metric BoltsUploaded byDGW
- Metagenomic Analyses Past and Future Trends.pdfUploaded byabcder1234
- 2012-01.pdfUploaded bymohamed_sahnoun_enis
- PAKISTAN’S FOOD CRISIS.pdfUploaded bymushahid.anwar9675
- Kerry George ResumeUploaded bymomnpop