Not sure that looking at their costs helps with

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not sure that looking at their costs helps with understanding ours better - we may focus too much on cost differentials and not enough on differentiating ourselves, maintaining our competitive advantages, and growing our margins Areas to discuss - we may want to find out whether we can get the same lower price for glass as Firm D - can we use Firm B’s materials efficiency and Firm C’s variable overhead consumption levels as our standards for the coming year?
7-33 7-39 (60 min.) Comprehensive variance analysis review . Actual Results Units sold (90% × 2,000,000) 1,800,000 Selling price per unit $4.80 Revenues (1,800,000 × $4.80) $8,640,000 Direct materials purchased and used: Direct materials per unit $0.80 Total direct materials cost (1,800,000 × $0.80) $1,440,000 Direct manufacturing labor: Actual manufacturing rate per hour $15 Labor productivity per hour in units 250 Manufacturing labor-hours of input (1,800,000 ÷ 250) 7,200 Total direct manufacturing labor costs (7,200 × $15) $108,000 Direct marketing costs: Direct marketing cost per unit $0.30 Total direct marketing costs (1,800,000 × $0.30) $540,000 Fixed costs ($850,000 $30,000) $820,000 Static Budgeted Amounts Units sold 2,000,000 Selling price per unit $5.00 Revenues (2,000,000 × $5.00) $10,000,000 Direct materials purchased and used: Direct materials per unit $0.85 Total direct materials costs (2,000,000 × $0.85) $1,700,000 Direct manufacturing labor: Direct manufacturing rate per hour $15.00 Labor productivity per hour in units 300 Manufacturing labor-hours of input (2,000,000 ÷ 300) 6,667 Total direct manufacturing labor cost (6,667 × $15.00) $100,000 Direct marketing costs: Direct marketing cost per unit $0.30 Total direct marketing cost (2,000,000 × $0.30) $600,000 Fixed costs $850,000 1. Actual Static-Budget Results Amounts Revenues $8,640,000 $10,000,000 Variable costs Direct materials 1,440,000 1,700,000 Direct manufacturing labor 108,000 100,000 Direct marketing costs 540,000 600,000 Total variable costs 2,088,000 2,400,000 Contribution margin 6,552,000 7,600,000 Fixed costs 820,000 850,000 Operating income $5,732,000 $6,750,000 2. Actual operating income $5,732,000 Static-budget operating income 6,750,000 Total static-budget variance $1,018,000 U
7-34 Flexible-budget-based variance analysis for Sonnet, Inc. for March 2010 Actual Results Flexible-Budget Variances Flexible Budget Sales- Volume Variances Static Budget Units (diskettes) sold 1,800,000 0 1,800,000 200,000 2,000,000 Revenues Variable costs Direct materials Direct manuf. labor Direct marketing costs Total variable costs $8,640,000 1,440,000 108,000 540,000 2,088,000 $360,000 U 90,000 F 18,000 U 0 72,000 F $9,000,000 1,530,000 90,000 540,000 2,160,000 $1,000,000 U 170,000 F 10,000 F 60,000 F 240,000 F $10,000,000 1,700,000 100,000 600,000 2,400,000 Contribution margin 6,552,000 288,000 U 6,840,000 760,000 U 7,600,000 Fixed costs 820,000 30,000 F 850,000 0 850,000 Operating income $5,732,000 $258,000 U $5,990,000 $ 760,000 U $6,750,000 3. Flexible-budget operating income = $5,990,000. 4. Flexible-budget variance for operating income = $258,000U. 5. Sales-volume variance for operating income = $760,000U. Analysis of direct mfg. labor flexible-budget variance for Sonnet, Inc. for March 2010 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. Mfg. Labor (7,200 × $15.00) $108,000 (7,200 × $15.00) $108,000 (*6,000 × $15.00) $90,000 $0 $18,000 U Price variance Efficiency variance * 1,800,000 units ÷ 300 direct manufacturing labor standard productivity rate per hour. 6. DML price variance = $0; DML efficiency variance = $18,000U 7. DML flexible-budget variance = $18,000U $760,000 U Total sales-volume variance $258,000 U Total flexible-budget variance $1,018,000 U Total static-budget variance $18,000 U Flexible-budget variance
7-35 7-40 (25 min.) Comprehensive variance analysis.

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