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1.
(30 min.) Flexible budget, direct materials and direct manufacturing labor variances.
Variance Analysis for Tuscany Statuary for 2011
Units sold
Direct materials
Flexible
Actual
Budget
Results
Variances
(1)
(2) = (1) (3)
5,500a
0
$
668,800
Sales
Flexible
Volume
Budget
Variances
(3)
(4) = (3) (5)
5,500
500 U
$ 8,800 U
1,180,000a
$2,801,550
Static
Budget
(5)
6,000a
660,000 b $ 60,000 F
9,750 F
20,000 F 1,200,000a
0
$20,950 F $2,822,500 $147,500 F
1,200,000a
$2,970,000
Static-budget variance
a
Given
b
$120/unit 5,500 units = $660,000
c
$120/unit 6,000 units = $720,000
d
$175/unit 5,500 units = $962,500
e
$175/unit 6,000 units = $1,050,000
2.
Direct materials
Actual Input
Quantity
Budgeted Price
$704,000b
720,000c
962,500d
$20,950 F
$147,500 F
Flexible-budget variance
Sales-volume variance
$168,450 F
Actual Incurred
(Actual Input
Quantity
Actual Price)
$668,800a
Flexible Budget
(Budgeted Input
Quantity Allowed for
Actual Output
Budgeted Price)
$660,000c
87,500 F
$35,200 F
$44,000 U
Price variance
Efficiency variance
$8,800 U
Flexible-budget variance
$952,750d
$925,000e
$27,750 U
$962,500f
$37,500 F
Price variance
$9,750 F
Flexible-budget variance
a
Efficiency variance
7-32
1a.
1b.
Revenues
Variable costs
DMFrames
DMLenses
6.60a
18.60b
18.00c
Actual
Volume
7,275
Flexible Budget
Amount
$582,000
7,275
7,275
7,275
48,015
135,315
130,950
314,280
112,500
426,780
Gross margin
$155,220
Units sold
Revenues
Variable costs
DMFrames
DMLenses
Direct manuf. labor
Total variable costs
Fixed manuf. costs
Total costs
Gross margin
Level 2
Level 1
Actual
Results
(1)
7,275
FlexibleBudget
Variances
(2)=(1)-(3)
Sales Volume
Variance
(4)=(3)-(5)
Flexible
Budget
(3)
7,275
Static
Budget
(5)
7,500
$596,550
$14,550F
$582,000
$18,000 U
$600,000
55,872
150,738
145,355
351,965
108,398
460,363
$136,187
7,857U
15,423U
14,405U
37,685U
4,102F
33,583U
$19,033U
48,015
135,315
130,950
314,280
112,500
426,780
$155,220
1,485 F
4,185 F
4,050 F
9,720 F
0
9,720 F
$ 8,280 U
49,500
139,500
135,000
324,000
112,500
436,500
$163,500
$19,033 U
Flexible-budget variance
$ 8,280 U
Sales-volume variance
$27,313 U
Static-budget
variance1c.
ct
erials:
mes
Actual Costs
Incurred
(Actual Input
Quantity
Actual Price)
(1)
(7,275 3.2 $2.40)
$55,872
Actual Input
Quantity
Budgeted Price
(2)
(7,275 3.2 $2.20)
$51,216
$4,656 U
Price variance
ct
erials:
ses
ct
uf.
or
$22,553 U
Efficiency variance
$1,964 F
Price variance
2.
$3,201 U
Efficiency variance
$7,130 F
Price variance
Flexible Budget
(Budgeted Input
Quantity Allowed
for Actual Output
Budgeted Price)
(3)
(7,275 3.00 $2.20)
$48,015
$16,369 U
Efficiency variance
Possibleexplanationsforthepricevariancesare:
(a) Unexpected outcomes from purchasing and labor negotiations during the year.
(b) Higher quality of frames and/or lower quality of lenses purchased.
(c) Standards set incorrectly at the start of the year.
Possible explanations for the uniformly unfavorable efficiency variances are:
(a) Substantially higher usage of lenses due to poor quality lenses purchased at lower price.
(b) Lesser trained workers hired at lower rates result in higher materials usage (for both frames and lenses), as well as
lower levels of labor efficiency.
(c) Standards set incorrectly at the start of the year.
7-35
(30 min.) Direct manufacturing labor and direct materials variances, missing data.
1.
Actual Costs
Incurred
(Actual Input
Actual Input
Quantity
Flexible Budget
(Budgeted Input
Quantity Allowed
Quantity
Actual Price)
$739,900a
Budgeted Price
$735,000b
$4,900 U
$7,500 F
Price variance
Efficiency variance
$2,600 F
Flexible-budget variance
a
2.
Unfavorable direct materials efficiency variance of $1,500 indicates that fewer pounds of direct materials were actually
used than the budgeted quantity allowed for actual output.
$1,500efficiencyvariance
= $3perpoundbudgetedprice
= 500 pounds
Budgeted pounds allowed for the output achieved = 5,500 30 = 165,000 pounds
Price variance
a
b
Given
190,000 pounds $3/pound = $570,000
Actual Input
Budgeted Price
$570,000b
7-39
(60 min.)
Actual Results
Units sold (95% 1,500,000)
Selling price per unit
1,425,000
$
6.10
$8,692,500
1.60
$2,280,000
12.20
250
5,700
69,540
$
0.25
$ 356,250
$ 810,000
1,500,000
$
6.00
$9,000,000
1.50
$2,250,000
12.00
300
5,000
$
60,000
1.
$
0.30
$ 450,000
$
Actual
800,000
Static-Budget
Revenues
Results
$8,692,500
Amounts
$9,000,000
Variable costs
Direct materials
Direct manufacturing labor
Direct marketing costs
Total variable costs
Contribution margin
Fixed costs
Operating income
2. Actual operating income
Static-budget operating income
Total static-budget variance
2,280,000 2,250,000
69,540
60,000
356,250
450,000
2,705,790
2,760,000
5,986,710
6,240,000
810,000
800,000
$5,176,710
$5,440,000
$5,176,710
5,440,000
$ 263,290 U
Flexible-Budget
Variances
1,425,000
Flexible
Budget
Sales-Volume
Variances
1,425,000
75,000
Static
Budget
1,500,000
Revenues
Variable costs
Direct materials
Direct manuf. labor
Direct marketing costs
Total variable costs
Contribution margin
Fixed costs
$8,692,500
$142,500 F
$8,550,000
$450,000 U
$9,000,000
2,280,000
69,540
356,250
2,705,790
5,986,710
810,000
142,500 U
12,540 U
71,250 F
83,790 U
58,710 F
10,000 U
2,137,500
57,000
427,500
2,622,000
5,928,000
800,000
112,500 F
3,000 F
22,500 F
138,000 F
312,000 U
0
2,250,000
60,000
450,000
2,760,000
6,240,000
800,000
Operating income
$5,176,710
$ 48,710 F
$5,128,000
$312,000 U
$5,440,000
$263,290 U
Total static-budget variance
$48,710 F
Total flexible-budget
variance
$312,000 U
Total sales-volume
variance
3.
4.
5.
6.
Static Budget:
Actual Market Size
Budgeted Market Size
Budgeted Market Share Budgeted Market Share
Budgeted Contribution Budgeted Contribution
Margin per Unit
Margin per Unit
(8,906,250 20% $4.16) (7,500,000 20% $4.16)
$7,410,000
$6,240,000
$1,482,000 U
Market-share variance
$1,170,000 F
Market-size variance
$312,000 U
Sales-volume variance
Analysis of direct mfg. labor flexible-budget variance for Sonnet, Inc. for March 2011
Direct.
Mfg. Labor
Actual Costs
Incurred
(Actual Input
Quantity
Actual Price)
(5,700 $12.20)
$69,540
Actual Input
Quantity
Budgeted Price
(5,700 $12.00)
$68,400
$1,140 U
Price variance
Flexible Budget
(Budgeted Input
Quantity Allowed
for Actual Output
Budgeted Price)
(*4,750 $12.00)
$57,000
$11,400 U
Efficiency variance
$12,540 U
Flexible-budget variance
* 1,425,000 units 300 direct manufacturing labor standard productivity rate per hour.
7.
8.
7-41
(30 min.)
$283,023
$4,797 F
Price variance
$50,184
Direct
Manufacturing
Labor
$7,380 F
Efficiency variance
$ -Price variance
(9,840 $12)
$118,080
$118,572
$492 U
Price variance
Flexible Budget
(Budgeted Input
Quantity Allowed
for Actual Output
Budgeted Price)
(4,920 20 $3)
$295,200
Flexible Budget
(Budgeted Input
Quantity Allowed
for Actual Output
Budgeted Price)
(4,920 7 $1.5)
$51,660
$1,476 F
Efficiency variance
(a)They may be paid on a piece-rate basis with incentives for production levels above
budget.
(b) They may want to create a relaxed work atmosphere, and a less demanding
standard can reduce stress.
(c) They have a them vs. us mentality rather than a partnership perspective.
(d) They may want to gain all the benefits that ensue from superior performance
(job security, wage rate increases) without putting in the extra effort required.
This behavior is unethical if it is deliberately designed to undermine the credibility of the
standards used at Stuckey.
3.
If Jorgenson does nothing about standard costs, his behavior will violate the
Standards of Ethical Conduct for Practitioners of Management Accounting. In
particular, he would violate the
(a) standards of competence, by not performing professional duties in accordance
with relevant standards;
(b) standards of integrity, by passively subverting the attainment of the organizations
objective to control costs; and
(c) standards of credibility, by not communicating information fairly and not
disclosing all relevant cost information.
4.
Jorgenson should discuss the situation with Fenton and point out that the standards are
lax and that this practice is unethical. If Fenton does not agree to change, Jorgenson
should escalate the issue up the hierarchy in order to effect change. If organizational
change is not forthcoming, Jorgenson should be prepared to resign rather than
compromise his professional ethics.
5.
are: