221_Solutions_Chap_12_Fa_05 - E12-19 a. The performance...

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E12-19 a. The performance report inappropriately compares the actual costs of manufacturing 30,000 units with the budgeted costs of manufacturing 28,000 units. The result is a series of unfavorable variances for variable manufacturing costs. The actual variable costs of manufacturing 30,000 units is expected to exceed the budgeted variable costs for 28,000 units. This is because variable costs change in proportion to changes in volume. b. A comparison should be made between the actual costs of manufacturing 30,000 units and the costs allowed in a flexible budget drawn up for this level of activity. Prior to developing such a budget, the standard variable costs per unit must be determined. Budget Units Standard Variable Costs Direct materials $ 82,000 ÷ 28,000 = $2.93 Direct labor 140,000 ÷ 28,000 = 5.00 Variable overhead 56,000 ÷ 28,000 = 2.00 Dover Company Production Department Performance Report For the Month of January Flexible Flexible Budget Flexible Budget Formula Actual Budget Variance Volume 30,000 30,000 Manufacturing costs: Direct materials $2.93/unit $ 89,600 $ 87,900 $1,700 U Direct labor 5/unit 165,000 150,000 15,000 U Variable overhead 2/unit 62,000 60,000 2,000 U Fixed overhead 28,000 27,500 28,000 500 F Total $346,100 $328,000 $18,200 U
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a. Standard quantity allowed × Standard price = Flexible budget 9,600 ozs.* × $15 = $144,000 *(2 ozs. × 4,800 units) b. Actual quantity × Actual price = Actual cost 8,800 ozs. × $15.20 = $133,760 Difference between (a) and (b) = $10,240 F Total materials variance c. Materials price variance = AQ (AP - SP) = 8,800 × ($15.20 $15.00) = 8,800 × $0.20 = $1,760 U d. Materials quantity variance = SP(AQ SQ) = $15.00 × (8,800 ozs. 9,600 ozs.) = $15.00 × 800 ozs. = $12,000
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221_Solutions_Chap_12_Fa_05 - E12-19 a. The performance...

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