P11-39

1. Explain the difference between a static budget and a flexible budget.

Ans: Standard budgets are prepared for a single, planned level of activity. While, Flexible
budgets cover a range of activity within which the firm may operate.
2. Which of the two budgets would be more useful when planning the company’s cash
needs over a range of activity?
Ans: Flexible budgets would be more useful as it
3. Prepare a performance report that compares static budget and actual costs for the period
just ended.
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4. Prepare a performance report that compares flexible budget and actual costs for the
period just ended.
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5. Which of the two reports is preferred? Should Kellerman be praised for outstanding
performance or is the general manager’s warning appropriate? Explain, citing any
apparent problems for the firm.
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P11-36
1. How many standard clerical hours are allowed in July, given actual application activity?
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2. Why would it not be sensible to base the company’s flexible budget on the number of
applications processed instead of the number of clerical hours allowed?
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3. Construct a formula flexible overhead budget for the company.
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4. What is the flexible budget for total overhead cost in July?
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P11-37
1. Draw two graphs, one for variable overhead and one for fixed overhead.
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2. Write a brief memo to Countrytime Studio’s general manager, explaining the graph so
that she will understand the concepts of budgeted and applied overhead.
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P11-41
1. Calculate the budgeted fixed overhead for the year.
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2. Compute the variable-overhead spending variance.
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 3. Calculate the company’s fixed-overhead volume variance.
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4. Did Maxwell spend more or less than anticipated for fixed overhead? How much?
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5. Wad variable overhead underapplied or overapplied during the year? By how much?
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6. On the basis of the data presented, does it appear that Maxwell suffered a lengthy strike
during the year by its production workers? Briefly explain.
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P11-43
1. Prepare a flexible budget for LawnMate Company for the month of May that includes
separate variable-cost budgets for each type of cost.
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2. Determine the variance between the flexible budget and actual cost for each cost item.
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3. Discuss how the revised budget and variance data are likely to impact the behavior of Al
Richmond, the production manager.
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4. Construct an Excel spreadsheet to solve requirements 1 and 2 above. Show how the
solution will change if the following information changes: actual sales amounted to 4,700
units, and actual fixed overhead was $179,000.
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P11-52
1. November sales price variance.
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2. November sales volume variance.
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C11-55
1. Prepare a new contribution report for April, in which:
a. The static budget column in the contribution report is replaced with a flexible
budget column.
b. The variances in the contribution report are recomputed as the difference between
the flexible budget and actual columns.
2. What is the total contribution margin in the flexible budget column of the new report
prepared for requirement 1?
3. Explain the meaning of the total contribution margin in the flexible budget column of the
new report prepared for requirement 1.
4. What is the total variance between the flexible budget contribution margin and the actual
contribution margin in the new report prepared for requirement 1? Explain this total
contribution margin variance by computing the following variances.
 5.
a. Explain the problems that might arise in using direct-labor hours as the basis for
applying overhead.
b. How might activity-based costing (ABC) solve the problems described in requirement
5a?
P10-34
Determine the standard material cost of a 10-liter container of the new product.
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P10-37
1. On the basis of the information contained in the performance report, should Santa Rosa
be concerned about its variances? Why?
Ans: Santa Rosa should not be concerned due to the variances are favorable and small
cost amounts.
2. Calculate the company’s direct-material variances and direct-labor variances.
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3. On the basis of your answers to requirements 2, should Santa Rosa be concerned about its
variances? Why?
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4. Are things going as smoothly as the vice president believes? Evaluate the company’s
variances and determine whether the change to a new supplier and Schmidt’s team-
building/morale-boosting training exercises appear to be working. Explain.
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5. Is it possible that some of the company’s current problems lie outside Schmidt’s area of
responsibility? Explain.
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P10-38
1. Show how the following amounts were calculated for the month of January:
a. Standard direct-labor hours.
b. Direct-labor efficiency variance.
2. Calculate the following amounts.
a. The standard direct-labor cost for each of the 10 months.
b. For each month, 20 percent of the standard direct-labor cost.
3. Suppose management investigates all variances in excess of 20 percent of standard cost.
Which variances will be investigated?
4. Suppose the standard deviation for the direct-labor efficiency variance is $5,000. Draw a
statistical control chart, and plot the variance data.
5. Using the chart developed in requirement 4, which variances will be investigated?
6. The variances for March, April, and June are much larger than the others. Suggest at least
one reason for this.
P10-42
1. Develop the standard cost for direct material and direct labor of a cutting board.
2. Explain the role of each of the following people in developing standards.
a. Purchasing manager.
b. Industrial manager.
c. Managerial accountant.
3.
a. Explain why a standard-costing system can strengthen cost management.
b. Give at least two reasons to explain why a standard-costing system could negatively
impact the motivation of production employees.