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Unformatted text preview: Cost Accounting 13 edition CHAPTER 7 Activity Based Costing & Management 17, 22, 24, 37, and 39 Not on My Accounting Lab 7-17 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 Actual Results (1) Flexible- Budget Variances (2) = (1) – (3) Flexible Budget (3) Sales- Volume Variances (4) = (3) – (5) Static Budget (5) Output units Direct materials Direct manufacturing labor Direct marketing labor Total direct costs 8,800 $364,000 78,000 110,000 $552,000 $12,000 U 7,600 U 4,400 U $24,000 U 8,800 $352,000 70,400 105,600 $528,000 1,200 U $48,000 F 9,600 F 14,400 F $72,000 F 10,000 $400,000 80,000 120,000 $600,000 $24,000 U $72,000 F Flexible-budget variance Sales-volume variance $48,000 F Static-budget variance The Level 1 analysis shows total direct costs have a $48,000 favorable variance. However, the Level 2 analysis reveals that this favorable variance is due to the reduction in output of 1,200 units from the budgeted 10,000 units. Once this reduction in output is taken into account (via a flexible budget), the flexible-budget variance shows each direct cost category to have an unfavorable variance indicating less efficient use of each direct cost item than was budgeted, or the use of more costly direct cost items than was budgeted, or both. Each direct cost category has an actual unit variable cost that exceeds its budgeted unit cost: Actual Budgeted Units Direct materials Direct manufacturing labor Direct marketing labor 8,800 $ 41.36 $ 8.86 $ 12.50 10,000 $ 40.00 $ 8.00 $ 12.00 Analysis of price and efficiency variances for each cost category could assist in further the identifying causes of these more aggregated (Level 2) variances. 7-22 Materials and manufacturing labor variances. Actual Costs Incurred (Actual Input Qty. × Actual Price) Actual Input Qty. × Budgeted Price Flexible Budget (Budgeted Input Qty. Allowed for Actual Output × Budgeted Price) Direct Materials $200,000 $214,000 $225,000 $14,000 F $11,000 F Price variance Efficiency variance $25,000 F Flexible-budget variance Direct $90,000 $86,000 $80,000 Mfg. Labor $4,000 U $6,000 U Price variance Efficiency variance $10,000 U Flexible-budget variance 7-24...
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