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COURSE READER SOLUTIONS Danny S. Litt Student Name: ___________________________________________ Student ID Number: _______________________________________ Management Accounting Management 122

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DANNY S. LITT MANAGEMENT 122 COURSE READER - REV I2 - SOLUTIONS.DOC Class Problem Redo the budgeting example with the following updated sales forecast and prepare the balance sheet: Budget Sales for the next five months April 25,000 Units May 50,000 Units June 30,000 Units July 25,000 Units August 15,000 Units Requirement Assume that the forecast for sales in April increases from 20,000 units to 25,000 units sold. Make sure your balance sheet is in balance! Budgeted Balance Sheet Current Assets Cash 71,300.00 A/R 75,000.00 Raw Materials Inventory 4,600.00 Finished Goods Inventory 24,646.23 175,546.23 Plant and Equipment Land 400,000.00 Buildings and equipment 1,802,500.00 Accumlated Depreciation (841,500.00) 1,361,000.00 Total Assets 1,536,546.23 Liabilities Revolver Due - A/P 28,400.00 Stockholder's Equity Common Stock 200,000.00 Retained Earnings 1,308,146.23 1,508,146.23 Total Liabilites and Stockholders Equity 1,536,546.23 Page | 1
DANNY S. LITT MANAGEMENT 122 COURSE READER - REV I2 - SOLUTIONS.DOC Class Problem Bug Catchers manufactures traps that catch bugs. The standard materials allowed for each unit is 8 direct material items. Each item has a standard cost of \$5. During August 9,000 input items were used to manufacture 1,100 actual units. The material costs \$5.25 per item. Requirement a. Determine the price variance. b. Determine the quantity variance. Solution Price variance = Q a x (P a – P s ) = 9,000 x (\$5.25 - \$5.00) = \$2,250U Quantity variance = P s x (Q a – Q s ) = \$5 x (9,000 – (1,100 x 8)) = \$1,000U Page | 2

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DANNY S. LITT MANAGEMENT 122 COURSE READER - REV I2 - SOLUTIONS.DOC Class Problem Danny Door Company manufactures large house doors. A certain size door requires the following: Direct materials standard 36 square feet at \$0.70 per sq. ft. Direct manufacturing labor standard 1 hour at \$10 During the month the company made 1,400 of these doors and used 51,200 sq. ft. of wood costing \$36,864. Direct labor totaled 1,500 hours for \$14,700. Requirement a. Determine the direct materials variances. b. Determine the direct manufacturing labor variances. Solution Direct materials variances: Actual unit cost = \$36,864/51,200 sq. ft = \$0.72 per sq. ft. Price variance = Q a x (P a – P s ) = 51,200 x (\$0.72 - \$0.70) = \$1,024U Quantity variance = P s x (Q a – Q s ) = \$0.70 x (51,200 – (1,400 x 36)) = \$560U Direct manufacturing labor variances: Actual labor cost = \$14,700/1,500 = \$9.80 per hour. Rate variance = Q a x (P a – P s ) = 1,500 x (\$9.80 - \$10.00) = \$300F Efficiency variance = P s x (Q a – Q s ) = \$10.00 x (1,500 – (1,400 x 1 hour)) = 1,000U Page | 3
DANNY S. LITT MANAGEMENT 122 COURSE READER - REV I2 - SOLUTIONS.DOC Class Problem Litt Manufacturing Company manufactures computer desks. The 2009 operating budget is based on sales of 40,000 units at \$25 per desk. Operating income is anticipated to be \$60,000. Budgeted variable costs are \$16 per desk while fixed costs are \$300,000. Actual income for 2009 was a surprising \$177,000 on actual sales of 42,000 units. Actual variable costs were \$15 per unit and fixed costs totaled \$285,000. Requirement Prepare a variance analysis report with both flexible budget and sales volume variances.

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