ACCA
ACCA 310 CHAP 8 ANSWERS TO SELECTED QUESTIONS

ACCA 310 CHAP 8 ANSWERS TO SELECTED QUESTIONS - -A2(20-30...

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-A2 (20-30 min.) This analysis of flexible budget and static budget variances follows Exhibit 8-5. Actual Costs Incurred (1) Flexible Budget Based on Actual Outputs  × Standard Prices (3) Static Budget Standard Inputs Allowed for Planned Outputs  × Standard Prices (5) Systems consulting, variable \$44,000 90 requests  ×  \$500 = \$45,000 75 requests  ×  \$500 = \$37,500 Flexible-budget variance (1) – (3) \$44,000 - \$45,000 = \$1,000 F Sales-Activity variance (3)-(5) \$45,000 - \$37,500 = \$7,500 U Static budget variance (1)-(5) \$44,000 -\$37,500 = \$6,500 U Systems consulting, fixed \$76,000 (given) \$65,000 \$65,000 Flexible-budget variance (1) – (3) \$76,000 - \$65,000 = \$11,000 U Sales-Activity variance (3)-(5) \$65,000 - \$65,000 = -0- Static budget variance (1)-(5) \$76,000 - \$65,000 = \$11,000 U Note that the activity-level variance for fixed costs is always zero because flexible- and static- budget fixed costs are always the same.

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8-A3 (20 - 30 min.) 1. Direct materials: 5 lb. × \$10.00 = \$ 50.00 Direct labor: 10 hrs. × \$25.00 = 250.00 Total \$300.00 2. The flexible budget is based on actual output achieved, not scheduled or budgeted output. A B C Actual Cost Incurred: Actual Inputs  × Actual       Prices Flexible Budget Based on Actual Inputs  × Standard Prices Flexible Budget Based on Expected Inputs for Actual Outputs Achieved  ×  Standard Prices In general: \$xxx \$yyy \$zzz Price variance (A - B) Quantity variance (B - C) Flexible-budget variance (A - C) Direct Materials 3,100 lbs  ×  \$8.50 = \$26,350 3,100 lbs  ×  \$10.00 = \$31,000 525 units  ×  5  ×  \$10.00 = \$26,250 Price variance (A - B) = \$26,350 - \$31,000 = \$4,650 F Quantity variance (B - C) \$31,000 - \$26,250 = \$4,750 U Flexible-budget variance (A - C) \$26,350 - \$26,250 = \$100 U A B C Direct  Labor 5,500 hrs  ×  \$26.00 = \$143,000 5,500 hrs  ×  \$25.00 = \$137,500 525 units  ×  10 hrs  × \$25.00 = \$131,250 Price variance (A - B) = \$143,000 - \$137,500 = \$5,500 U Quantity variance (B - C) = \$137,500 - \$131,250 = \$6,250 U Flexible-budget variance (A - C) \$143,000 - \$131,250 = \$11,750 U
3. Among the possible explanations for the performance are: (a) Were substandard materials used because they were cheaper, resulting in higher waste than usual? (Note that the unfavorable quantity variance more than offset the favorable price variance and resulted in a net unfavorable materials variance.) (b) Net savings in material costs may be undesirable if they cause inefficient use of direct labor. It is possible that use of substandard materials led to increased use of direct labor and the unfavorable direct labor quantity variance. (c) Direct labor is expensive. A wage rate that is just 4% above the standard rate can be significant in total dollar amount.

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8-B1 (15-20 min.) 1. DAVID SKOLD TAX SERVICES, INC. Summary Performance Report Actual Flexible Results Budget at Actual Flexible for Actual Sales Activity Budget Activity Activity Static Level Variances Level Variances Budget Physical units (clients) 3 ,000 - 3 ,000 500 F 2 ,500 Sales \$1,080,000 \$30,000F \$1,050,000\$175,000F \$875,000 Variable costs 800 ,000 50 ,000 U 750 ,000 125 ,000 U 625 ,000 Contribution margin \$ 280,000 \$20,000 U \$ 300,000 \$ 50,000F \$250,000 Fixed costs 159 ,500 9 ,500 U 150 ,000 - 150 ,000 Operating income \$ 120 ,500 \$29 ,500 U \$ 150 ,000 \$ 50 ,000 F \$100 ,000 2. Static budget operating income \$100,000 Variances: Sales activity variances \$50,000F Flexible-budget variances 29 ,500 U 20 ,500 F Actual operating income \$120 ,500
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