Chapter 8 - CHAPTER 8 BUDGETARY CONTROL AND VARIANCE...

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1 C HAPTER 8 B UDGETARY CONTROL AND VARIANCE ANALYSIS SOLUTIONS 8.22 Sales volume variance will be unfavorable when the actual sales volume is less than planned sales volume underlying the master budget. Sales price variance will be unfavorable when the actual sales price is less than the expected sales price at the time of preparing the master budget. Yes, it is possible. Think of the reduced demand for trucks and SUVs in response to steeply rising fuel price in the first six months of 2008. The auto companies are reducing the prices on these vehicles drastically to increase sales. Yet, despite such price cuts, the sales of these vehicles plummeted during this period. 8.23 Not necessarily. The sales volume variance has nothing to do with input quantities. It will be favorable when the actual sales volume (i.e., output sold) is greater than the planned sales volume underlying the master budget. 8.24 The materials price variance will be unfavorable if the actual price of materials is higher than the budgeted price. It may not always indicate a control problem. Unexpected shortages in the market can cause the price of materials to increase. The purchase manager cannot be held responsible for such eventualities. 8.29 While non-financial measures are specific and timely, they are often numerous and they interact with one another. Increasing customer satisfaction often requires spending more time with the customer. Both customer satisfaction measures and mean time per call are non-financial measures that are (typically) related to each other. Deciding how much time to spend on each customer requires trading off the long-term financial benefit from keeping customers satisfied against the cost of time and resources needed. 8.30 a. The total profit variance = actual profit – master budget profit. With the information provided, we have: Master Budget Actual Results # seats (6 games) 1 156,000 246,000 Ticket Revenue 2 $3,900,000 $4,674,000 Variable costs 3 780,000 1,230,000 Contribution margin $3,120,000 $3,444,000 Fixed costs 2,000,000 2,000,000 Profit $1,120,000 $1,444,000
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2 1 156,000 = 26,000 per game × 6 games; 246,000 = 41,000 per game × 6 games. 2 $3,900,000 = 156,000 × $25; $4,674,000 = 246,000 × $19. 3 $780,000 = 156,000 × $5; $1,230,000 = 246,000 × $5. Thus, Midwestern University’s total profit variance for football = $1,444,000 – $1,120,000 = $324,000 or $324,000 F . That is, Midwestern University’s profit from football was $324,000 higher than expected. b. To arrive at the sales volume variance and the sales price variance, we need to calculate Midwestern University’s football flexible budget. With the data provided, we have: Flexible Budget # seats (6 games) 246,000 Ticket Revenue 1 $6,150,000 Variable costs 2 1,230,000 Contribution margin $4,920,000 Fixed costs 2,000,000 Profit $2,920,000 1 $6,150,000 = 246,000 × $25. 2
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Chapter 8 - CHAPTER 8 BUDGETARY CONTROL AND VARIANCE...

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