ch07sol - CHAPTER 7 FLEXIBLE BUDGETS DIRECT-COST VARIANCES...

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CHAPTER 7 FLEXIBLE BUDGETS, DIRECT-COST VARIANCES, AND MANAGEMENT CONTROL 7-16 (20–30 min.) Flexible budget. Actual Results (1) Flexible- Budget Variances (2) = (1) – (3) Flexible Budget (3) Sales-Volume Variances (4) = (3) – (5) Static Budget (5) Units sold 2,800 g 0 2,800 200 U 3,000 g Revenues $313,600 a $ 5,600 F $308,000 b $22,000 U $330,000 c Variable costs 229,600 d 22,400 U 207,200 e 14,800 F 222,000 f Contribution margin 84,000 16,800 U 100,800 7,200 U 108,000 Fixed costs 50,000 g 4,000 F 54,000 g 0 54,000 g Operating income $ 34,000 $12,800 U $ 46,800 $ 7,200 U $ 54,000 $12,800 U $ 7,200 U Total flexible-budget variance Total sales-volume variance $20,000 U Total static-budget variance a $112 × 2,800 = $313,600 b $110 × 2,800 = $308,000 c $110 × 3,000 = $330,000 d Given. Unit variable cost = $229,600 ÷ 2,800 = $82 per tire e $74 × 2,800 = $207,200 f $74 × 3,000 = $222,000 g Given 2. The key information items are: Actual Budgeted Units Unit selling price Unit variable cost Fixed costs 2,800 $ 112 $ 82 $50,000 3,000 $ 110 $ 74 $54,000 The total static-budget variance in operating income is $20,000 U. There is both an unfavorable total flexible-budget variance ($12,800) and an unfavorable sales-volume variance ($7,200). The unfavorable sales-volume variance arises solely because actual units manufactured and sold were 200 less than the budgeted 3,000 units. The unfavorable flexible-budget variance of $12,800 in operating income is due primarily to the $8 increase in unit variable costs. This increase in unit variable costs is only partially offset by the $2 increase in unit selling price and the $4,000 decrease in fixed costs. 7-1
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7-27 (20 - 30 min.) Materials and manufacturing labor variances, standard costs. 1. Direct Materials Actual Costs Incurred (Actual Input Qty. × Actual Price) Actual Input Qty. × Budgeted Price Flexible Budget (Budgeted Input Qty. Allowed for Actual Output × Budgeted Price) (37,000 sq. yds. × $10.20) $377,400 (37,000 sq. yds. × $10.00) $370,000 (20,000 × 2 × $10.00) (40,000 sq. yds. × $10.00) $400,000 $7,400 U $30,000 F Price variance Efficiency variance $22,600 F Flexible-budget variance The unfavorable materials price variance may be unrelated to the favorable materials efficiency variance. For example, (a) the purchasing officer may be less skillful than assumed in the budget, or (b) there was an unexpected increase in materials price per square yard due to reduced competition. Similarly, the favorable materials efficiency variance may be unrelated to the unfavorable materials price variance. For example, (a) the production manager may have
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