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Acc 311- 4-1 MyAccountingLab Homework: Chapters 6-8

1. E6-21
In 2017, McKnight & Sons, a small environmental-testing firm, performed 10,600 radon tests for
$280 each and 15,000 lead tests for $200 each. Because newer homes are being built with lead-free
pipes, lead-testing volume is expected to decrease by 15% next year. However, awareness of radon-
related health hazards is expected to result in a 5% increase in radon-test volume each year in the near
future. Jim McKnight feels that if he lowers his price for lead testing to $190 per test, he will have to face
only a 6% decline in lead-test sales in 2018.
Read the requirements
Requirement 1. Prepare the sales budget for McKnight & Sons assuming that prices are held at 2017
levels.

Requirement 2. Prepare the sales budget assuming that McKnight lowers the price of a lead test to
$190.

McKnight Should lower the price of a lead test in if its goal is to maximize sales revenue.
2. E6-24
The Mendez Company has prepared a sales budget of 45,000 finished units for a 3-month period. The
company has an inventory of 11,000 units of finished goods on hand at December 31 and has a target
finished goods inventory of 16,000 units at the end of the succeeding quarter. It takes 3 gallons of direct
materials to make one unit of finished product. The company has inventory of 62,000 gallons of direct
materials at December 31 and has a target ending inventory of 54,000 gallons at the end of the
succeeding quarter. How many gallons of direct materials should Mendez Company purchase during the
3 months ending March 31?
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Select the labels and enter the amounts to calculate the direct materials (gallons) to be purchased.

45,000 + 16,000 – 11,000 = 50,000 units * 3 gallons = 150,000 gallons

3.  E6-26
Prime, Inc., bottles and distributes mineral water from the company's natural springs in northern Oregon.
Prime markets two products: 12-ounce disposable plastic bottles and 1-gallon reusable plastic containers.

Requirement 1. For 2018, Prime marketing managers project monthly sales of 450,000 12-ounce
bottles and 130,000 1-gallon containers. Average selling prices are estimated at $0.30 per 12-ounce
bottle and $1.25 per 1-gallon container. Prepare a revenues budget for Prime, Inc., for the year ending
December 31, 2018.
It is 12 month units; 450,000 *12 = 5400,000

Requirement 2. Prime begins 2018 with 990,000 12-ounce bottles in inventory. The vice president of
operations requests that 12-ounce bottles ending inventory on December 31, 2018, be no less than
640,000 bottles. Based on sales projections as budgeted previously, what is the minimum number of 12-
ounce bottles Prime must produce during 2018?
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Requirement 3. The VP of operations requests that ending inventory of 1-gallon containers on

December 31, 2018, be 300,000 units. If the production budget calls for Prime to produce 1,600,000 1-
gallon containers during 2018, what is the beginning inventory of 1-gallon containers on January 1, 2018?

The beginning inventory of 1-gallon containers, in units, is 260,000 on January 1, 2018.

Beggning inv. + production inv. = budgeted sales inv. + targeted ending inv.

4.  E7-23
Check Mate Printers, Inc., produces luxury checkbooks with three checks and stubs per page. Each
checkbook is designed for an individual customer and is ordered through the customer's bank.
The company's operating budget for September 2017 included these data:
The executive vice president of the company observed that the operating income for September was
much lower than anticipated, despite a higher-than-budgeted selling price and a lower-than-budgeted
variable cost per unit. As the company's management accountant, you have been asked to provide
explanations for the disappointing September results. Check Mate develops its flexible budget on the
basis of budgeted per-output-unit revenue and per-output-unit variable costs without detailed analysis of
budgeted inputs.
Read the requirements
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Requirement 1. Prepare a static-budget-based variance analysis of the September performance.

Begin with the actual results, then compute the static budget and the static-budget variances. Label each
variance as favorable or unfavorable. (Enter an operating loss with a minus sign or parentheses.)

Requirement 2. Prepare a flexible-budget-based variance analysis of the September performance.

Begin with the actual results, then complete the flexible budget columns and the static budget columns.
Label each variance as favorable or unfavorable. (For variances with a $0 balance, make sure to enter "0"
in the appropriate field. If the variance is zero, do not select a label. Enter operating losses with a minus
sign or parentheses.)
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Requirement 3. Why might Check Mate find the flexible-budget-based variance analysis more informative
than the static-budget-based variance analysis?
The flexible-budget breaks down
the static-budget variance. This allows the managers to see the portion of the variance that arose because sales
price and costs were either higher or lower than expected, as shown in the
flexible-budget variance column, and the portion of the variance that arose because the sales volume was
different than expected, as shown in the sales-volume variance
column.
The primary reason for the unfavorable static-budget variance is the decrease in unit volume. One
explanation for this change is the increase actual selling price from the budgeted price. Variable costs
decreased relative to the flexbile budget, which could be due to efficient management or using lower
quality materials.

5. E7-24
The Amherst Company produces engine parts for car manufacturers. A new accountant intern at
Amherst has accidentally deleted the calculations on the company's variance analysis calculations for the year
ended December 31, 2017. The following table is what remains of the data.
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Requirement 1. Calculate all the required variances. (If your work is accurate, you will find that the
total static-budget variance is $0.)
Begin with the flexible budget columns, then the sales volume variance column. Label each variance as
favorable (F) or unfavorable (U). (For variances with a $0 balance, make sure to enter "0" in the
appropriate field. If the variance is zero, do not select a label. Round your answers to the nearest
whole dollar.)

Calculate the total static-budget variance to verify your work is accurate. Determine the labels and then
enter the amounts to calculate the static-budget variance. (For variances with a $0 balance, make sure to
enter "0" in the appropriate field. If the variance is zero, do not select a label. Abbreviation used: CM =
contribution margin.)

Requirement 2. What are the actual and budgeted selling prices? What are the actual and budgeted
variable costs per unit? (Round your answers to the nearest cent.)
The actual selling price is $ 6.50 per unit. The budgeted selling price is $ 3.40 per unit.
The actual variable cost is $ 4.52 per unit. The budgeted variable cost is $2.25 per unit.
Requirement 3. Review the variances you have calculated and discuss possible causes and potential
problems. What is the important lesson learned here?
Actual variable costs increased, causing a(n) unfavorable flexible-budget variable cost variance. This variance
could be a result of a(n) increase in direct material prices.
(Round percentage to the nearest whole number.)
Amherst was able to pass most of the change in direct material prices on to its customers. Actual selling price
increased by approximately 91 %, bringing about an offsetting flexible-budget revenue variance. ( 6.4 – 3.4)
/ 3.4
A(n) increasein the actual number of units sold contributed to more favorable results.
Amherst's customers may have stocked up , anticipating future increases in direct material prices.
The important lesson learned here is that
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A. a superficial examination of summary level data may be insufficient. It is imperative to scrutinize data at a
more detailed level. Had not been able to pass cost savings on to customers, losses might have been
considerable.
B. a superficial examination of summary level data may be insufficient. It is imperative to scrutinize data at a
more detailed level. Had not been able to pass costs on to customers, losses might have been considerable.
C. an examination of summary level data is usually sufficient. As long as the company has an actual operating
income and not an actual operating loss, it is not imperative to scrutinize data at a more detailed level.
D. an examination of summary level data is usually sufficient. As long as sales-volume variances are
favorable, it is not imperative to scrutinize data at a more detailed level.

6. E7-25
Chiffon, Inc. produces the basic fillings used in many popular frozen desserts and treats—vanilla and chocolate
ice creams, puddings, meringues, and fudge.
Chiffon uses standard costing and carries over no inventory from one month to the next. The ice-cream
product group's results for June 2017 were as follows:

Requirements 1 and 2. Calculate the static-budget variance in units, revenues, variable

manufacturing costs, and contribution margin. What percentage is each static-budget variance relative to
its static-budget amount? Break down each static-budget variance into a flexible-budget variance and
a sales-volume variance.
Begin with the flexible budget columns, then enter in the sales volume variance and static budget
variances. Finally, compute the static budget variance as a percentage of the static budget. Label each
variance as favorable (F) or unfavorable (U). (For variances with a $0 balance, make sure to enter "0" in
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the appropriate field. If the variance is zero, do not select a label. Round dollar amounts to the nearest
whole dollar and percentages to two decimal places, X.XX%.)

1 2 = 1- 3 3 4=3-5 5 6=1-5 7 = 6/ 5

Requirement 3. Calculate the selling-price variance.

The selling-price variance is $32,400 unfavorable.
Requirement 4. Assume the role of management accountant at Chiffon. How would you present the
results to Jorge Baum? Should he be more concerned? If so, why?
The flexible-budget variances show that for the actual sales volume of 360,000 pounds, selling prices were
lower and costs per pound were higher.
The favorable sales-volume variance in revenues offsets the unfavorable variable-cost variance.
Baum should be more concerned because the small static-budget variance in contribution margin is actually
made up of a(n) favorable sales-volume variance in contribution margin, a(n) unfavorable
selling-price variance, and a(n) unfavorable variable manufacturing costs variance.
Baum should analyze why each of these variances occurred and the relationships among them.

7. E8-24
The Roti Bread Company bakes baguettes for distribution to upscale grocery stores. The company has
two direct-cost categories: direct materials and direct manufacturing labor. Variable manufacturing overhead is
allocated to products on the basis of standard direct manufacturing labor-hours.
The Roti Bread Company also allocates fixed manufacturing overhead to products on the basis of standard
direct manufacturing labor-hours. For 2017, fixed manufacturing overhead was budgeted at $4.00 per direct
manufacturing labor-hour. Actual fixed manufacturing overhead incurred during the year was $280,000.
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Requirement 1. Prepare a variance analysis of fixed manufacturing overhead cost.

Begin by completing the table below for the fixed manufacturing overhead that will be used to calculate
the variances.
Budgeted fixed manufacturing overhead costs = 3200k *0.02 * 4$ = 256,000
Allocated fixed manufacturing overhead = 2800k * 0.02 * 4$ = 224,000

Now complete the 4-variance analysis using the amounts you calculated above. (If no variance exists
leave the dollar value blank. Label the variance as favorable (F), unfavorable (U) or never a variance (N).)

280,000 -256000 ; 256000 - 224000

Requirement 2. Is fixed overhead underallocated or overallocated? By what amount?
Fixed manufacturing overhead is underallocated by $56,000 = 24000 + 32000
Requirement 3. Comment on your results. Discuss the variances and explain what may be driving them.
The production-volume variance captures the difference between the number of budgeted baguettes and
the actual number of baguettes produced.
Bread Company's spending variance means that the actual aggregate of fixed costs exceeds
the budget amount. For example, monthly leasing rates for baguette-making machines may have
increased above those in the budget.
8. E8-25
The Principles Corporation is a manufacturer of centrifuges. Fixed and variable manufacturing overheads
are allocated to each centrifuge using budgeted assembly-hours. Budgeted assembly time is 2
hours per unit. The following table shows the budgeted amounts and actual results related to overhead
for June 2017.
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312*29 = 9048; (240 * 2 ) * 29 = 13920;

Now complete the table below for the fixed manufacturing overhead.
Budged rate = 11000 / (110 * 2) = 50$ / h; (240 * 2) * 50 = 24000

Now complete the 4-variance analysis using the amounts you calculated above. (If no variance exists
leave the dollar value blank. Label the variance as favorable (F), unfavorable (U) or never a variance (N).)

Requirement 2. Prepare journal entries for Principles' June 2017 variable and fixed manufacturing
overhead costs and variances; write off these variances to Cost of Goods Sold for the quarter ending
June 30, 2017. (Record debits first, then credits. Exclude explanations from any journal entries.)
Begin by recording the actual variable manufacturing overhead incurred.

Record the variable manufacturing overhead allocated.

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Record the variable manufacturing overhead variances for the period.

Record the variable manufacturing overhead variance write-off.

Record the actual fixed overhead costs incurred.

Record the fixed overhead costs allocated.

Record the fixed overhead variances for the period.

Record the fixed manufacturing overhead variance write-off.

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Requirement 3. How does the planning and control of variable manufacturing overhead costs differ from
the planning and control of fixed manufacturing overhead costs?
Planning and control of variable manufacturing overhead costs has both a long-run and a short-run focus.
The long-run focus involves Principles planning to undertake only value-added overhead activities
and for the short-run focus to manage the cost drivers of value-added overhead activities in the most
efficient way.
Planning and control of fixed manufacturing overhead costs have primarily a long-run focus. It involves
undertaking only value-added fixed-overhead activities for a budgeted level of output.
Principles takes most of the key decisions that determine the level of overhead costs at the start of the
accounting period.

9. E8-26
Rozema, Inc., produces chemicals for large biotech companies. It has the following data for
manufacturing overhead costs during August 2017:

Requirement
Fill in the blanks. Use F for favorable and U for unfavorable: