Qty qty allowed allowed allowed for for for actual

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Qty. Qty. Allowed Allowed Allowed for for for (Actual (Actual (Actual Input Input Input Qty. Qty. Qty. Actual Actual Actual Input Input Input Qty. Qty. Qty. Actual Actual Actual Output Output Output × × Actual Actual Actual Price) Price) Price) × Budgeted Budgeted Budgeted Price Price Price Budgeted Budgeted Budgeted Price) Price) Price) Direct materials $594,000 a $540,000 b $600,000 c $54,000 U $60,000 F Price variance Efficiency variance $6,000 F Flexible-budget variance Direct manufacturing labor $950,000 a $1,000,000 e $960,000 f $50,000 F $40,000 U Price variance Efficiency variance $10,000 F Flexible-budget variance a 54,000 pounds × $11/pound = $594,000 b 54,000 pounds × $10/pound = $540,000 c 6,000 statues × 10 pounds/statue × $10/pound = 60,000 pounds × $10/pound = $600,000 d 25,000 pounds × $38/pound = $950,000 e 25,000 pounds × $40/pound = $1,000,000
7-22 f 6,000 statues × 4 hours/statue × $40/hour = 24,000 hours × $40/hour = $960,000
7-23 7-31 7-31 7-31 (30 min.) Variance Variance Variance analysis, analysis, analysis, nonmanufacturing nonmanufacturing nonmanufacturing setting setting setting 1. Static Budget Static Budget Static Budget Budget Budget Budget Actual Actual Actual Cars Detailed 200 225 25 F Revenue 30,000 $ 39,375 $ 9,375 $ F Variable Costs Costs of supplies 1,500 2,250 750 U Labor 5,600 6,000 400 U Total Variable Costs 7,100 8,250 1,150 U Contribution Margin 22,900 31,125 8,225 F Fixed Costs 9,500 9,500 - Operating Income 13,400 $ 21,625 $ 8,225 $ F Lightning Car Detailing Income Statement Variances For the month ended June 30, 2011 Variance Variance Variance 2. To compute flexible budget variances for revenues and the variable costs, first calculate the budgeted cost or revenue per car, and then multiply that by the actual number of cars detailed. Subtract the actual revenue or cost, and the result is the flexible budget variance. FBV(Revenue) = Actual Revenue - Actual number of cars (Budgeted revenue/budgeted # cars) = $39,375 - 225 ($30,000/200) = $39,375 - $33,750 = $5,625 Favorable FBV(Supplies) = Actual Supplies expense - Actual number of cars (Budgeted cost of supplies/budgeted # cars) = $2,250 - 225 ($1,500/200) = $2,250 - $1,687.50 = $562.50 Unfavorable FBV(Labor) = Actual Labor expense - Actual number of cars (Budgeted cost of labor/budgeted # cars) = $6,000 - 225 ($5,600/200) = $6,000 - $6,300 = $300 Favorable
7-24 The flexible budget variance for fixed costs is the same as the static budget variance, and equals $0 in this case. Therefore, the overall flexible budget variance in income is given by aggregating the variances computed earlier, adjusting for whether they are favorable or unfavorable. This yields: FBV(Operating Income) = $5,625F (-) $562.50U (+) $300F = $5,362.50. 3. In addition to understanding the variances computed above, Stevie should attempt to keep track of the number of cars worked on by each employee, as well as the number of hours actually spent on each car. In addition, Stevie should look at the prices charged for detailing, in relation to the hours spent on each job. 4. This is just a simple problem of two equations & two unknowns. The two equations relate to the number of cars detailed and the labor costs (the wages paid to the employees). X = number of cars detailed by long-term employee Y = number of cars detailed by both short-term employees (combined) Budget: X + Y = 200 Actual: X + Y = 225 40X + 20Y = 5600 40X + 20Y = 6000 Substitution: Substitution: 40X + 20(200-X) = 5600 40X + 20(225-X) = 6000 20X = 1600 20X = 1500 X=80 X = 75 Y=120 Y=150 Therefore the long term employee is budgeted to detail 80 cars, and the new employees are budgeted to detail 60 cars each.

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