Solutions to core assigned problems from chapter 8.docx -...

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Suggested solution to selected problems from chapter 8 8.22 The sales volume variance will be unfavorable when the actual sales volume is less than the planned sales volume underlying the master budget. The sales price variance will be unfavorable when the actual sales price is less than the expected sales price at the time of preparing the master budget. Yes, it is possible. Think of the reduced demand for trucks and SUVs in response to steeply rising fuel price in the first six months of 2008. The auto companies are reducing the prices on these vehicles to increase sales. Yet, despite such price cuts, the sales of these vehicles decreased during this period. 8.27 As we know, the sales volume variance will be favorable when the actual sales volume is more than planned sales volume underlying the master budget. Unexpected demand spurts can lead to a favorable variance. But when such a spurt occurs, capacity resources get stretched, in which case the actual fixed costs are likely to increase (e.g., rental of additional equipment, overtime paid for supervision) 8.30 a. The total profit variance = actual profit – master budget profit. With the information provided, we have: Master Budget Actual Results # of cupcakes 4,000 4,500 Revenue $10,000 $10,800 Variable costs 4,000 4 ,500 Contribution margin $6,000 $6,300 Fixed costs 2,000 2 ,000 Profit $4,000 $4,300 Thus, Clarissa’s total profit variance = $300 F = $4,300 – $4,000. b. & c. To arrive at the sales volume variance and the sales price variance, we need to calculate Clarissa’s flexible budget. With the data provided, we have: 1
Flexible Budget # of cupcakes 4,500 Revenue 1 $11,250 Variable costs 2 4,5000 Contribution margin $6,750 Fixed costs 2,000 Profit $4,750 1 $11,250 = $2.50 × 4,500 2 $4,500 = $1 × 4,500 The sales volume variance equals the difference between flexible budget profit and master budget profit. For Clarissa, we have $4,750 – $4,000 = $750 F sales volume variance. The sales price variance equals the difference between actual revenue and flexible budget sales revenue. For Clarissa, we have $10,800 – $11,250 = ($450) or $450 U sales price variance. NOTE: Clarissa’s total profit variance of $300 F = $450 U sales price variance + $750 F sales volume variance. This occurs because actual fixed and variable costs equaled budgeted fixed and variable costs (i.e., both the fixed cost spending variance and the flexible budget variable cost variance = $0). 8.38 a. To calculate the ground beef price and quantity variances, we need to know: (1) the flexible budget for ground beef; (2) the “as if” budget for ground beef; and (3) the actual results. The table below provides the required computations and accompanying variances. Flexible Budget 1 Quantity Variance “As if” Budget 2 Price Variance Actual Results 3 Ground Beef $4,050 $300 F $3,750 $250 U $4,000 2
1 $4,050 = 1,200 hamburgers actually served × (225/200) pounds of ground beef

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