7 4 variance analysis for connor company actual

This preview shows page 4 - 7 out of 16 pages.

We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
Applied Calculus for the Managerial, Life, and Social Sciences
The document you are viewing contains questions related to this textbook.
Chapter 2 / Exercise 61
Applied Calculus for the Managerial, Life, and Social Sciences
Tan
Expert Verified
7-4
We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
Applied Calculus for the Managerial, Life, and Social Sciences
The document you are viewing contains questions related to this textbook.
Chapter 2 / Exercise 61
Applied Calculus for the Managerial, Life, and Social Sciences
Tan
Expert Verified
Variance Analysis for Connor CompanyActualResults(1)Flexible-BudgetVariances(2) = (1) – (3)FlexibleBudget(3)Sales-VolumeVariances(4) = (3) – (5)StaticBudget(5)Output unitsDirect materialsDirect manufacturing laborDirect marketing laborTotal direct costs8,800$364,00078,000110,000$552,0000$12,000 U7,600 U4,400U$24,000U8,800$352,00070,400105,600$528,0001,200U$48,000 F9,600 F14,400F$72,000F10,000$400,00080,000120,000$600,000$24,000 U$72,000 FFlexible-budget variance Sales-volume variance$48,000 FStatic-budget varianceThe Level 1 analysis shows total direct costs have a $48,000 favorable variance.However, the Level 2 analysis reveals that this favorable variance is due to the reduction inoutput of 1,200 units from the budgeted 10,000 units. Once this reduction in output is taken intoaccount (via a flexible budget), the flexible-budget variance shows each direct cost category tohave an unfavorable variance indicating less efficient use of each direct cost item than wasbudgeted, or the use of more costly direct cost items than was budgeted, or both.Each direct cost category has an actual unit variable cost that exceeds its budgeted unit cost:ActualBudgetedUnitsDirect materialsDirect manufacturing laborDirect marketing labor8,800$ 41.36$ 8.86$ 12.5010,000$ 40.00$ 8.00$ 12.00Analysis of price and efficiency variances for each cost category could assist in furtheridentifying causes of these more aggregated (Level 2) variances.7-18 (25–30 min.) Flexible-budget preparation and analysis.Bank Management Printers, Inc., produces luxury checkbooks with three checks and stubs perpage. Each checkbook is designed for an individual customer and is ordered through thecustomer’s bank. The company’s operating budget for September 2014 included these data:The actual results for September 2014 were as follows:7-5
The executive vice president of the company observed that the operating income for Septemberwas much lower than anticipated, despite a higher-than-budgeted selling price and a lower-than-budgeted variable cost per unit. As the company’s management accountant, you have been askedto provide explanations for the disappointing September results.Bank Management develops its flexible budget on the basis of budgeted per-output-unitrevenue and per-output-unit variable costs without detailed analysis of budgeted inputs.Required:1.Prepare a static-budget-based variance analysis of the September performance.2.Prepare a flexible-budget-based variance analysis of the September performance.3.Why might Bank Management find the flexible-budget-based variance analysis more infor-mative than the static-budget-based variance analysis? Explain your answer.SOLUTION1.Variance Analysis for Bank Management Printers for September 2014Level 1 AnalysisActualResults(1)Static-BudgetVariances(2) = (1) – (3)StaticBudget(3)Units soldRevenue12,000$252,000a3,000U$ 48,000 U15,000$300,000cVariable costs84,000d36,000F120,000fContribution marginFixed costsOperating income168,000150,000$ 18,00012,000 U 5,000U$ 17,000U180,000145,000$ 35,000$17,000 UTotal static-budget variance2.Level 2 AnalysisActualResults(1)Flexible-BudgetVariances(2) = (1) – (3)FlexibleBudget(3)SalesVolumeVariances(4) = (3) – (5)StaticBudget(5)Units sold12,000012,0003,000U15,000Revenue $252,000a$12,000 F$240,000b$60,000 U$300,000c

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture