Karpenkova Polina, MA-22

1. Using budget data, how many motors would have to be sold for
Waltham Motors Division to break even?
As per budget data provided in case exhibit performance report:
Total Fixed costs = FC =$260 000
Selling price per unit= SP= Total sales/Total sold units=864 000/18 000=
$48
Variable Cost per unit=VCU=Total variable cost/total sold units=512
800/18 000=$28.49
Now by using formula,
Breakeven number of motors=Total Fixed Cost/Contribution margin per
motor
Here, Contribution margin per unit=SP-VCU=48-28.49=$19.51
So, Breakeven number of motors= 260 000/19.51=13 326
Waltham motors division should sell 13 326 motors to achieve breakeven
point where total sales revenue matches total cost.

2. Using budget data, what was the total expected cost per unit if all
manufacturing and shipping overhead (both variable and fixed)
was allocated to planned production? What was the actual per
unit cost of production and shipping?
As per budget data provided in Exhibit shown below,
Total budgeted Cost (variable & fixed) =$512 800+$260 000=$772 800
Total budgeted units=18 000
So, Total Expected cost per unit=772 800/180 00=$42.93
Similarly, Total actual cost per unit=$49.51
Per unit actual production cost= $39.51 and Per unit actual shipping
cost=$2
 Budget cost for Actual cost for Under or over
Cost Type Per unit budget cost Per unit actual cost
18 000 units 14 000 units budget
Variable manufacturing costs 18 000 14 000
- direct material 108 000,0 85 400,0 6,0 6,1 over
- direct labor 288 000,0 246 000,0 16,0 17,6 over
- indirect labor 57 600,0 44 400,0 3,2 3,2 under
- idle time 14 400,0 14 200,0 0,8 1,0 over
- cleanup time 10 800,0 10 000,0 0,6 0,7 over
- misc supplies 5 200,0 4 000,0 0,3 0,3 under
Total variable manufacturing costs 484 000,0 404 000,0 26,9 28,9 over
- variable shipping costs 28 800,0 28 000,0 1,6 2,0 over
Total variable costs: 512 800,0 432 000,0 28,5 30,9 over
Nonvariable manufacturing costs
- supervision 57 600,0 58 800,0 3,2 4,2 over
- rent 20 000,0 20 000,0 1,1 1,4 over
- depreciation 60 000,0 60 000,0 3,3 4,3 over
- other 10 400,0 10 400,0 0,6 0,7 over
Total nonvariable manufact costs 148 000,0 149 200,0 8,2 10,7 over
- selling and damn costs 112 000,0 112 000,0 6,2 8,0 over
Total nonvariable costs 260 000,0 261 200,0 14,4 18,7 over
TOTALCOSTS 772 800,0 693 200,0 42,9 49,5 over

3. Comment in the performance report and the plant accountant’s

analysis of result. How, if at all, would you suggest the
performance report be changed before sending it on to the
division manager and Marco Corporation headquarters?
A. The performance report prepared by the plant accountant is not
depicting true picture as the sales revenues&costs (actual/budgeted)
are being compared at different output level i.e 18 000 for budget &
14 000for actual. The plant accountant’s claim that every cost except
supervision is either at or under budget, is totally wrong&cannot be
accepted. As per unit cost analysis in Exhibit above, all costs are over-
budgeting except indirect labor.
B. Plant accountant is deliberately attempting to report over-
simplification in inventory costs (WIP&finished goods), which is not a
realistics cenario.
C. As per plant accountant note nos. 2,3,4 and 5, actual material price is
5% less than expected i.e actual material price should be $5.7(.95*6),
but as per exhibit above, actual material price comes out to be $6.1.
Moreover, actual direct labor cost per unit should be $16.4 but as per
exhibit above, its value comes out to be $17.57.

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 4. Prepare your own analysis of the Waltham Division’s operations in
May. Explain in as much detail as possible why income differed
from what you would have expected.
As per Exhibit 2, static budget variance (level1) for operating income is 98
400U which is further sub-divided into (level2) sales volume variance (78
044U) and flexible budget variance (20 356U). Sales volume variance may
occur due to low overall motors demand, wrong budgeted sales targets
or quality issue. Flexible budget variance for operating income (20 356U)
is further divided into selling price variance for sales (14 000F), direct
material variance (1 400U), Direct labor variance (22 000U),
Variable/fixed overhead variance etc. Variance occurred as Waltham
actually used greater quantities of inputs such as direct material, direct
labor, Idle time, shipping costs compared to the budgeted ones as well as
used higher prices per unit of these inputs. Direct material variance (1
400U) is due to only DM Price variance (1 400U) as efficiency variance is
zero. Direct labor variance (22 000U) is further decomposed into DL-price
variance (6 000U) & DL-efficiency variance (16 000U). Production
manager should control efficiency variance. W.r.t accountant’s notes,
actual direct material cost should be $79 800 (0.95*84 000) instead of
$85 400.Actual direct labor cost should be $229 600 (2*8.2*14 000)
instead of $246 000. Variable shipping cost against output of 14 000
should be $22 400 (1.6*14 000) instead of $28 000. With these three
changes incorporated, we obtain actual operating income of $20 400
instead of loss of $7 200.
 Expected income was recorded against output of 18 000 motor
units whereas actual income calculated against 14 000 motor units.
 Actual selling price per unit was $49 whereas budgeted selling price
per unit was $48.
 Actual direct material cost per unit was $6.1 whereas its budgeted
value was $6.
 Actual direct labor cost per unit was $16.4 whereas its budgeted
value was $16.

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 Flexible Sales-
Static budget
Parameters Static budget Actual Flexible budget budget Volume
variances
variance variance
Units 18 000,0 14 000,0 4 000,0 14 000,0 0,0 4 000,0
Sales 864 000,0 656 000,0 17 800,0 67 200,0 1 400,0 19 200,0
Variable manufacturing costs
- direct material 108 000,0 85 400,0 22 600,0 84 000,0 1 400,0 24 000,0
- direct labor 288 000,0 246 000,0 42 000,0 224 000,0 22 000,0 64 000,0
- indirect labor 57 600,0 44 400,0 13 200,0 44 800,0 -400,0 12 800,0
- idle time 14 400,0 14 200,0 200,0 11 200,0 3 000,0 3 200,0
- cleanup time 10 800,0 10 000,0 800,0 8 400,0 1 600,0 2 400,0
- misc supplies 5 200,0 4 000,0 1 200,0 4 044,0 -44,0 1 156,0
Total variable manufacturing costs 484 000,0 404 000,0 80 000,0 376 444,0 27 556,0 107 556,0
- variable shipping cots 28 800,0 28 000,0 800,0 22 400,0 5 600,0 6 400,0
Total variable costs 512 800,0 432 000,0 80 800,0 398 844,0 33 156,0 113 956,0
- contribution margin 351 200,0 254 000,0 97 200,0 273 156,0 19 156,0 78 044,0
Nonvariable manufacturing costs
- supervision 57 600,0 58 800,0 1 200,0 57 600,0 1 200,0 0,0
- rent 20 000,0 20 000,0 0,0 20 000,0 0,0 0,0
- depreciation 60 000,0 60 000,0 0,0 60 000,0 0,0 0,0
- other 10 400,0 10 400,0 0,0 10 400,0 0,0 0,0
Total nonvariable manufacturing costs 148 000,0 149 200,0 1 200,0 148 000,0 1 200,0 0,0
- selling and admn costs 112 000,0 112 000,0 0,0 112 000,0 0,0 0,0
Total nonvariable costs 260 000,0 261 200,0 1 200,0 260 000,0 1 200,0 0,0
OPERATING INCOME (LOSS) 91 200,0 -7 200,0 98 400,0 13 156,0 20 356,0 78 044,0