Ch%207%20Selected%20Problem%20Solutions

Ch%207%20Selected%20Problem%20Solutions - CHAPTER 7...

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CHAPTER 7 FLEXIBLE BUDGETS, DIRECT-COST VARIANCES, AND MANAGEMENT CONTROL Selected Problem Solutions 7-16 (20–30 min.) Flexible budget. Variance Analysis for Brabham Enterprises for August 2009 Actual Results (1) Flexible- Budget Variances (2) = (1) – (3) Flexible Budget (3) Sales-Volume Variances (4) = (3) – (5) Static Budget (5) Units (tires) 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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7-17 (15 min.) Flexible budget. The existing performance report is a Level 1 analysis, based on a static budget. It makes no adjustment for changes in output levels. The budgeted output level is 10,000 units––direct materials of $400,000 in the static budget ÷ budgeted direct materials cost per attaché case of $40. The following is a Level 2 analysis that presents a flexible-budget variance and a sales- volume variance of each direct cost category. Variance Analysis for Connor Company
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Ch%207%20Selected%20Problem%20Solutions - CHAPTER 7...

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