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Acc334F2010-MT#1B-solution - ACCOUNTING 3334 Fall 2010...

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ACCOUNTING 3334 - Fall 2010 MID-TERM EXAM # 1B Dr. Jeff Power Suggested Solutions Name _________________________________ Student Number ______________ NOTES: ANSWER ALL QUESTIONS IN THE SPACE PROVIDED (Back of page if necessary) DO NOT SEPARATE THE PAGES OF THE EXAM. YOU HAVE 75 MINUTES TO COMPLETE THE EXAM SHOW ALL OF YOUR CALCULATIONS FOR POSSIBLE PART MARKS Problem #1 (30 points) Horngren Transportation Company executives have had trouble interpreting operating performance for a number of years. The company has used a budget based on detailed expectations for the forthcoming quarter set at the beginning of the quarter. The reported results of the most recent quarter are as follows: Budget Actual Variance Sales $9,500,000 $10,000,000 $500,000 F Variable costs: Fuel 986,000 1,000,000 14,000 U Repairs & maintenance 98,000 100,000 2,000 U Supplies and miscellaneous 196,000 200,000 4,000 U Variable labour 5,500,000 5,700,000 200,000 U Total variable costs $6,780,000 $ 7,000,000 $220,000 U Fixed costs: Supervision 200,000 200,000 -- Rent 200,000 200,000 -- Amortization 1,600,000 1,600,000 -- Other fixed costs 200,000 200,000 --__ Total fixed costs 2,200,000 2,200,000 --__ Total Costs $8,980,000 9,200,000 220,000 U Operating income $ 520,000 $ 800,000 $280,000 F The branch manager was upset about the unfavorable cost variances, but was happy that his overall performance was favorable. His immediate supervisor, the vice-president for operations was totally confused and remarked, “I can see some merit in comparing actual performance with budgeted performance, because we can see whether actual revenue coincided with our best guess for budget purposes. But I can’t see how this performance report helps us evaluate the overall performance of the branch manager.” Assume that all budgeted selling prices equalled actual selling prices. Required: (1) Prepare a more appropriate overhead performance report for the last quarter. Indicate whether the variances are favourable (F) or unfavourable (U). Show only a spending variance. A more appropriate report for performance management and control purposes would be one based on a flexible budget rather than a static budget Therefore we should prepare a budget for the actual level of activity (sales) that occurred based or standard rates. Note that the actual selling prices equalled the budgeted selling prices, therefore the flexible budget sales revenue equals the actual sales revenue.
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