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Module 6: Chapter 10 Pre-Test
P10-67: Tully Company’s production performance report for April includes the information
shown below.
Actual
Master Budget
Volume
60,000
68,000
Manufacturing costs:
Direct materials
474,000
544,000
Direct labor
184,200
204,000
Fixed manufacturing support
412,000
430,000
Total
1,070,200
1,178,000
Requirement – Prepare a flexible budget for the items shown and compute the flexible budget
cost variances and planning cost variances for each item. Indicate whether the variances are
favorable and unfavorable for each item.
Begin with the master budget, then compute the flexible budget columns and the actual results
columns. Label each variance as favorable (F) or unfavorable (U).
Master Budget
Planning Variance
Flexible Budget
Units
68,000
60,000
Direct materials
544,000
(64,000) F
480,000
Direct labor
204,000
(24,000) F
180,000
Fixed manufacturing
support
430,000
0
430,000
Total
1,178,000
(88,000) F
1,090,000
Variable Budget Variance
Actual
60,000
(6,000)
F
474,000
4,200
U
184,200
(18,000)
F
412,000
(19,800)
F
1,070,200
Q10-24: What effect will the purchase and use of cheaper, lower quality materials likely have on
price and quantity (efficiency) components of both materials and labor variances?
This will result in a favorable material price variance, an unfavorable material quantity variance,
and an unfavorable labor efficiency variance, but the labor rate variance is not likely to be
affected.
P10-62: The Dessert Delights Candy Company produces a single product: a chocolate almond
bar that sells for $0.80 per bar. The variable costs for each bar (sugar, chocolate, almonds,
wrapper, and labor) total $0.45. The total monthly fixed costs are $70,000. Last month, bar sales
reached 1 million. However, the president of Dessert Delights Company was not satisfied with
its performance and is considering the following options to increase the company’s profitability:
1. Increase advertising.
2. Increase the quality of the bar’s ingredients and simultaneously increase the selling price.
3. Increase the selling price with no change in ingredients.
Requirement A) the sales manager is confident that an intensive advertising campaign will
double sales volume. If the company president’s goal is to increase this month’s profits by 40%
over last month’s, what is the maximum amount that can be spent on advertising that doubles
sales volume?
Requirement B) Assume that the company increases the quality of its ingredients, thus increasing
variable costs to $0.55 per bar. By how much must the selling price per unit be increased to
maintain the same breakeven point in units?
Requirement C) Assume next that the company has decided to increase its selling price to 0.85
per bear with no change in advertising or ingredients. Compute the sales volume in units that
would be needed at the new price for the company to earn the same profit as it earned last month.
Requirement A – Begin by entering the formula to compute profit in this scenario.
