Why might managers find a flexible budget analysis

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Why might managers find a flexible-budget analysis more informative than a static-budget analysis? 7-6 Describe the steps in developing a flexible budget. 7-7 List four reasons for using standard costs. 7-8 How might a manager gain insight into the causes of a flexible-budget variance for direct materials? 7-9 List three causes of a favorable direct materials price variance. 7-10 Describe three reasons for an unfavorable direct manufacturing labor efficiency variance. 7-11 How does variance analysis help in continuous improvement? 7-12 Why might an analyst examining variances in the production area look beyond that business func- tion for explanations of those variances? 7-13 Comment on the following statement made by a plant manager: “Meetings with my plant accountant are frustrating. All he wants to do is pin the blame on someone for the many vari- ances he reports.” 7-14 How can the sales-volume variance be decomposed further to obtain useful information? 7-15 “Benchmarking against other companies enables a company to identify the lowest-cost producer. This amount should become the performance measure for next year.” Do you agree? Exercises 7-16 Flex i ble budget . Brabham Enterprises manufactures tires for the Formula I motor racing circuit. For August 2012, it budgeted to manufacture and sell 3,000 tires at a variable cost of $74 per tire and total fixed costs of $54,000. The budgeted selling price was $110 per tire. Actual results in August 2012 were 2,800 tires manufactured and sold at a selling price of $112 per tire. The actual total variable costs were $229,600, and the actual total fixed costs were $50,000. Required 1 . Prepare a performance report (akin to Exhibit 7-2, p. 231) that uses a flexible budget and a static budget. 2 . Comment on the results in requirement 1. 7-17 Flex i ble budget . Connor Company’s budgeted prices for direct materials, direct manufacturing labor, and direct marketing (distribution) labor per attach é case are $40, $8, and $12, respectively. The pres- ident is pleased with the following performance report: Actual output was 8,800 attach é cases. Assume all three direct-cost items shown are variable costs. Required Is the president’s pleasure justified? Prepare a revised performance report that uses a flexible budget and a static budget. 7-18 Flex i ble-budget preparat i on and analys i s . Bank Management Printers, Inc., produces luxury check- books with three checks and stubs per page. Each checkbook is designed for an individual customer and is ordered through the customer’s bank. The company’s operating budget for September 2012 included these data: Number of checkbooks 15,000 Selling price per book $ 20 Variable cost per book $ 8 Fixed costs for the month $145,000
ASSIGNMENT MATERIAL 251 The actual results for September 2012 were as follows: Number of checkbooks produced and sold 12,000 Average selling price per book $ 21 Variable cost per book $ 7 Fixed costs for the month $150,000 The executive vice president of the company observed that the operating income for September was 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 asked to provide explanations for the disappointing September results. Bank Management develops its flexible budget on the basis of budgeted per-output-unit revenue and per-output-unit variable costs without detailed analysis of budgeted inputs. Performance Report, Year Ended December 31, 2012 Units (pounds) 1 2 3 4 5 6

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