FLEXIBLE BUDGETS, DIRECT-COST VARIANCES,
AND MANAGEMENT CONTROL
(2030 min.) Flexible budget.
Variance Analysis for Brabham Enterprises for August 2012
Units (tires) sold
A cost object is anything for which a separate measurement of costs is desired. Examples
include a product, a service, a project, a customer, a brand category, an activity, and a
Direct costs of a cost object are related to t
6-22 . Revenues, production, and purchases budgets. The Suzuki Co. in Japan has a division that
manufactures two-wheel motorcycles. Its budgeted sales for Model G in 2013 are 900,000 units.
Suzukis target ending inventory is 80,000 units, and
1. Choose a cost driver for each overhead cost pool and calculate the manufacturing overhead cost per
unit for each product.
2. Compute the manufacturing cost per unit for each product.
22 Variable costs and fixed costs. Consolidated Minerals (CM) owns the rights to extract minerals from
beach sands on Fraser Island. CM has costs in three areas:
a. Payment to a mining subcontractor who charges $80
2-22. Variable costs and fixed costs. Consolidated Minerals (CM) owns the rights to extract minerals from beach
sands on Fraser Island. CM has costs in three areas:
a. Payment to a mining subcontractor who charges $80 per ton of beach sand mined and retur
Keep Packaging Dept(Insourcing)
Tax saving on sale M/C*
sale D/M inventory
Tax saving on sale D/M*
Many managerial decisions require an analysis of the behavior of costs and profits as a
function of the expected volume of sales. In the short run, the costs and prices of a firm's products
NORMAL COSTING SYSTEMS
Normal costing (actually an AbsorptionNormal-Job costing system) differs from actual
costing by the feature that the former uses estimates for the amounts of overhead (variable and
fixed) that are a
UNIVERSITY OF ILLINOIS AT CHICAGO
College of Business Administration
Accounting 506: MANAGEMENT ACCOUNTING
Professor SOMNATH DAS.
Office: 2301 University Hall
FLEXIBLE BUDGETS, OVERHEAD COST VARIANCES, AND
(20 min.) Variable manufacturing overhead, variance analysis.
Variable Manufacturing Overhead Variance Analysis for Esquire Clothing for June 2014
PRICING DECISIONS AND COST MANAGEMENT
13-21 (20 min.) Cost-plus target return on investment pricing.
Target operating income = target return on investment invested capital
Target operating income (20% of $1,000,000)
Total fixed cost
10-22 (1520 min.) Estimating a cost function, high-low method.
The key point to note is that the problem provides high-low values of X (annual round
trips made by a helicopter) and Y X (the operating cost per round trip). We first need to
CVP analysis, sensitivity analysis.
CMU = $30$21(0.05 $30) = $7.50
$7.50 per pair
= 200,000 pairs
Note: No income taxes are paid at the breakeven point because operating income is $0.
(30 min.) Flexible budget, working backward.
1. Variance Analysis for The Clarkson Company for the year ended December 31, 2014
(2) = (1)
6-22 (30 min.) Budgeting: direct material usage, manufacturing cost, and gross margin.
Direct Material Usage Budget in Quantity and Dollars
Physical Units Budget
Direct materials required for
Blue Rugs (200,000 rugs 36 skeins and 0.8 gal.
(1015 min.) ABC, process costing.
Rates per unit cost driver.
$375,000 (25,000 + 50,000)
= $5 per machine hour
$120,000 (50 + 50)
= $1,200 per production run
Variable and absorption costing, explaining operating-income differences.
Key inputs for income statement computations are:
Goods available for sale
ESTIMATION OF COST BEHAVIOR
Cost behavior refers to how costs behave as we change the level of output or production
level. We have to estimate cost behavior since cost behavior itself is not DIRECTLY observable.