7 28 7 34 60 min comprehensive variance analysis

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7-28 7-34 (60 min.) Comprehensive variance analysis, responsibility issues. 1a. Actual selling price = $82.00 Budgeted selling price = $80.00 Actual sales volume = 4,850 units Selling price variance = (Actual sales price Budgeted sales price) × Actual sales volume = ($82 $80) × 4,850 = $9,700 Favorable 1b. Development of Flexible Budget Budgeted Unit Amounts Actual Volume Flexible Budget Amount Revenues $80.00 4,850 $388,000 Variable costs DMFrames $2.20/oz. × 3.00 oz. 6.60a4,850 32,010 DMLenses $3.10/oz. × 6.00 oz. 18.60b4,850 90,210 Direct manuf. labor $15.00/hr. × 1.20 hrs. 18.00c4,850 87,300Total variable manufacturing costs $209,520 Fixed manufacturing costs 75,000Total manufacturing costs 284,520Gross margin $103,480a$33,000 ÷ 5,000 units;b$93,000 ÷ 5,000 units;c$90,000 ÷ 5,000 units Actual Results (1) Flexible- Budget Variances (2)=(1)-(3) Flexible Budget (3) Sales - Volume Variance (4)=(3)-(5) Static Budget (5) Units sold 4,8504,8505,000Revenues $397,700$ 9,700F $388,000$ 12,000U $400,000Variable costs DMframes 37,248 5,238 U 32,010 990 F 33,000 DMlens 100,492 10,282 U 90,210 2,790 F 93,000 Direct labor 96,9039,603U 87,3002,700F 90,000Total variable costs 234,643 25,123 U 209,520 6,480 F 216,000 Fixed manuf. costs 72,2652,735F 75,000075,000Total costs 306,90822,388U 284,5206,480F 291,000Gross margin $ 90,792$12,688U $103,480$ 5,520U $109,000Level 2 $12,688 U $ 5,520 U Flexible-budget variance Sales-volume variance Level 1 $18,208 U Static-budget variance
7-29 1c.Price and Efficiency Variances DMFramesActual ounces used = 3.20 per unit × 4,850 units = 15,520 oz. Price per oz. = $37,248 15,520 = $2.40 DMLensesActual ounces used = 7.00 per unit × 4,850 units = 33,950 oz. Price per oz. = $100,492 33,950 = $2.96 Direct LaborActual labor hours = $96,90314.80 = 6,547.5 hours Labor hours per unit = 6,547.5 4,850 units = 1.35 hours per unit Actual Costs Incurred (Actual Input Qty. ×Actual Price) (1) Actual Input Qty. ×Budgeted Price (2) Flexible Budget (Budgeted Input Qty. Allowed for Actual Output ×Budgeted Price) (3) Direct Materials: Frames(4,850 × 3.2 × $2.40) $37,248 (4,850 × 3.2 × $2.20) $34,144 (4,850 × 3.00 × $2.20) $32,010 $3,104 U $2,134 U Price variance Efficiency varianceDirect Materials: Lenses(4,850 × 7.0 × $2.96) $100,492 (4,850 × 7.0 × $3.10) $105,245 (4,850 × 6.00 × $3.10) $90,210 $4,753 F $15,035 U Price variance Efficiency variance Direct Manuf. Labor(4,850 × 1.35 × $14.80) $96,903 (4,850 × 1.35 × $15.00) $98,212.50 (4,850 × 1.20 × $15.00) $87,300 $1,309.50 F $10,912.50 U Price variance Efficiency variance 2. Possible explanations for price variances are: (a)Purchasing and labor negotiations. (b)Quality of frames and lenses purchased. (c)Standards set incorrectly. Possible explanations for efficiency variance are: (a)Higher materials usage due to lower quality frames and lenses purchased at lower price. (b)Lesser trained workers hired at lower rates result in higher materials usage and lower labor efficiency. (c)Standards set incorrectly.
7-30 7-35 (20 min.)Service sector, solve for unknowns. This problem is best done by using a columnar format for the analysis of direct labor variance, as shown below. Start by inserting the four items of data provided in the problem (actual labor hours, direct labor flexible-budget variance, standard labor price and labor price variance) into the columnar presentation, as indicated by footnote a below. Then, proceed to calculate and fill in the other values in the columnar presentation in this order: (i) Actual Quantity Budgeted Price = 1,000 hrs. $30 per hr. = $30,000. (ii) Actual Labor Cost = $30,000 + unfavorable labor price variance = $30,000 + $1,000U = $31,000 (iii) Actual Labor Price = Actual Labor Costactual labor hrs. = $31,000 1,000 = $31 per hr. (Requirement 1)

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