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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