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156) Briefly describe the procedure of management by exception.
157) Identify and explain the primary differences between fixed and flexible budgets.
158) Identify the four steps in the budgetary control process.
159) Flexible budgets may be prepared before or after an actual period of activity. Why would
management prepare such budgets at differing time frames?
160) What are sales variances? How are they used?
161) Wren Company determined that in the production of their products last period; they had a
favorable price variance and an unfavorable quantity variance for direct materials. What might be
the cause(s) of this pattern of variances?
162) What are some causes of direct labor rate and efficiency variances?
163) What is the overhead volume variance? What would be the cause of a favorable volume variance?
164) How are unfavorable variances recorded? How are favorable variances recorded?
165) Joseph, Inc., provides the following results of June's operations:
Direct materials price variance ………….. $ 400F
Direct materials quantity variance ………. 2,000U
Direct labor rate variance ……………….. 100U
Direct labor efficiency variance ……….... 1,200F
Variable overhead spending variance …… 400U
Variable overhead efficiency variance ….. 800F
Fixed overhead spending variance ………. 100U
Fixed overhead volume variance ………... 600F
123
Required:
(a) Determine the total overhead cost variance for June.
(b) Applying the management by exception approach, which of the variances shown are of greatest
concern? Why?
166) Oxford Co. produces and sells two lines of t-shirts, Classic and Mod. Oxford provides the following
data. Compute the sales price and the sales volume variances for each product.
Budget
Actual
Unit sales price – Classic ….
$15
$16
Unit sales price–Mod …….
$20
$19
Unit sales–Classic …………
2,400
2,500
Unit sales–Mod …………..
2,000
1,900
167) A company's flexible budget for 60,000 units of production showed sales of $96,000, variable costs
of $36,000, and fixed costs of $26,000. What operating income would be expected if the company
produces and sells 70,000 units?
168) A company's flexible budget for 30,000 units of production showed sales of $90,000, variable costs
of $36,000, and fixed costs of $23,000. Prepare a flexible budget for 25,000 units assuming it is
within the same relevant range of production.
169) Based on predicted production of 25,000 units, FreshCo. anticipates $175,000 of fixed costs and
$137,500 of variable costs. What are the flexible budget amounts of total costs for 20,000 and
30,000 units?
170) Based on predicted production of 25,000 units, Marvel Mix Co. anticipates $175,000 of variable
costs and $137,500 of fixed costs. What are the flexible budget amounts of total costs for 28,000
units?
171) Anniston Co. planned to produce and sell 40,000 units. At that volume level, variable costs are
determined to be $320,000 and fixed costs are $30,000. The planned selling price is $10 per unit.
Anniston actually produced and sold 42,000 units.
Using a contribution margin format:
(a) Prepare a fixed budget income statement for the planned level of sales and production.
(b) Prepare a flexible budget income statement for the actual level of sales and production.
172) Clevenger Co. planned to produce and sell 30,000 units with a selling price of $10 per unit. Variable
costs are expected to be $4 per unit and fixed costs are expected to be $80,000. Clevenger actually
produced and sold 37,000 units.
Using a contribution margin format:
Prepare a fixed budget income statement for the planned level of sales and production.
173) Clevenger Co. planned to produce and sell 30,000 units with a selling price of $10 per unit. Variable
costs are expected to be $4 per unit and fixed costs are expected to be $80,000. Clevenger actually
produced and sold 37,000 units.
Using a contribution margin format:
Prepare a flexible budget income statement for the actual level of sales and production.
174) A product has a sales price of $20. Based on a 15,000-unit production level, the variable costs are
$12 per unit and the fixed costs are $6 per unit. Using a flexible budget for an actual production
and sales level of 18,000 units, what is the budgeted operating income?
175) Engineworks Co. provides the following fixed budget data for the year:
Sales (20,000 units) …………………………….
$600,000
Cost of sales:
Direct materials ……………………………..
$200,000
Direct labor …………………………………
160,000
Variable overhead …………………………..
60,000
Fixed overhead ……………………………..
80,000
500,000
Gross profit …………………………………….
$100,000
Operating expenses:
Fixed ………………………………………..
$12,000
Variable …………………………………….
40,000
52,000
Income from operations ………………………..
$ 48,000
The company's actual activity for the year follows:
Sales (21,000 units) ……………………………. $651,00
0
Cost of goods sold:
Direct materials …………………………….. $231,000
Direct labor ………………………………… 168,000
Variable overhead ………………………….. 73,500
Fixed overhead …………………………….. 77,500 550,000
Gross profit ……………………………………. $101,00
0
Operating expenses:
129
Operating expenses:
Fixed ………………………………………. 12,000
Variable ……………………………………. 39,500 51,50
0
Income from operations ………………………. $
49,500
Required:
Prepare a flexible budget performance report for the year using the contribution margin format.
176) Zip-up Company provides the following data developed for its master budget:
Sales price ……………………… $11.00 per unit
Costs:
Direct materials ………………. $3.00 per unit
Direct labor …………………… $4.75 per unit
Variable overhead ……………. $0.50 per unit
Factory depreciation …………. $12,000 per month
Supervision …………………… $13,000 per month
Selling expense ……………….. $0.25 per unit
Administrative cost …………… $9,000 per month
Required:
130
Prepare flexible budgets for sales of 20,000, 22,000 and 24,000 units. Use a contribution margin
format.
177) Jake Co. has prepared the following fixed budget for the year, assuming production and sales of
30,000 units. This level of production represents 80% of capacity.
Jake Co. Fixed Budget for Year Ending December 31
Sales …………………………………….
$1,500,000
Cost of goods sold:
Direct materials …………………
$540,000
Direct labor ……………………..
300,000
Indirect materials (variable) …....
15,000
Indirect labor (variable) ………...
21,000
Depreciation …………………….
180,000
Salaries ………………………….
90,000
Utilities (80% fixed) …………….
54,000
Maintenance (40% variable) ……
33,000
1,233,000
Gross profit ……………………………...
$ 267,000
Operating expenses: 131
Operating expenses:
Commissions ……………………
$ 45,000
Advertising (fixed) ……………...
60,000
Wages (variable) ………………..
15,000
Rent ……………………………..
30,000
Total operating expenses ……….
150,000
Income from operations ………………...
$ 117,000
Calculate the following flexible budget amounts at the indicated levels of capacity:
Operations at
60% of Capacity
Operations at
75% of Capacity
Sales
Total variable costs
Total fixed costs
Income from operations
178) Whidbey Co. fixed budget for the year is shown below:
Sales (50,000 units) ………………………….
$1,300,000
Cost of goods sold:
Direct materials …………………………
$150,000
Direct labor ……………………………...
450,000
Overhead (includes $2 per unit variable
overhead) …………………………………..
240,000
840,000
Gross profit ……………………………...
$ 460,000
Selling expenses:
Sales commissions (all variable) ………..
60,000
Rent (all fixed) ………………………….
40,000
Insurance (all fixed) …………………….
35,000
General and administrative expenses:
Salaries (all fixed) ………………………
72,000
Rent (all fixed) ………………………….
54,000
Depreciation (all fixed) ………………….
31,000
292,000
Net income from operations …………………
$ 168,000
Prepare a flexible budget for Whidbey Co. that shows a detailed budget for its actual sales volume of
42,000 units. Use the contribution margin format.
179) Lavoie Company planned to use 18,500 pounds of material costing $2.50 per pound to make 4,000
units of its product. In actually making 4,000 units, the company used 18,800 pounds that cost
$2.54 per pound. Calculate the direct materials price variance.
180) Lavoie Company planned to use 18,500 pounds of material costing $2.50 per pound to make 4,000
units of its product. In actually making 4,000 units, the company used 18,800 pounds that cost
$2.54 per pound. Calculate the direct materials quantity variance.
181) Job #411 was budgeted to require 3.5 hours of labor at $11.00 per hour. However, it was
completed in 3 hours by a person who worked for $14.00 per hour. What is the total labor cost
variance for Job #4115?
182) LJ Co. produces picture frames. It takes 3 hours of direct labor to produce a frame. LJ's standard
labor cost is $11.00 per hour. During March, LJ produced 4,000 frames and used 12,400 hours at a
total cost of $133,920. What is LJ's labor rate variance for March?
183) In producing 700 units of product last period, Azure Company used 5,000 pounds of Material K,
costing $34,250. The company has established the standard of using 7.2 pounds of Material K per
unit of product, at a price of $7.50 per pound. Calculate the materials price and quantity variances
associated with producing the 700 units, and indicate whether they are favorable or unfavorable:
137
184) Use the following cost information to calculate the direct labor rate and efficiency variances and
indicate whether they are favorable or unfavorable.
Actual costs and quantities:
Direct labor cost incurred …………..
$360,000
Direct labor hours used ……………..
20,000 hours
Units produced ………………..……
45,000 units
Standard costs and quantities:
Direct labor rate per hour …………..
$16.50
Hours to produce one unit ………….
0.5 hours
185) The following information describes production activities of the Midtown Corp.:
Raw materials used …………………… 16,000 lbs. at $4.05 per lb.
Factory payroll ………………………... 5,545 hours for a total of
$72,085
30,000 units were completed during the year
Budgeted standards for each unit produced:
1/2 lb. of raw material at $4.15 per lb.
10 minutes of direct labor at $12.50 per hour
Compute the direct materials price and quantity and the direct labor rate and efficiency variances.
Indicate whether each variance is favorable or unfavorable.
139
186) Ransom, Inc. budgets direct materials cost at $1.10/liter and each product requires 4 liters per unit
of finished product. April's activities show usage of 832 liters to complete 196 units at a cost of
$798.72. Compute the direct materials price and quantity variances. Indicate if the variance is
favorable or unfavorable.
187) Lionaire, Inc. has developed the following standard cost data based on 60,000 direct labor hours,
which is 75% of capacity.
Per Unit
Direct materials (6 lbs. @ $2.00/lb.) $12.00
Direct labor (1 hrs. @ $8.00/hr.) 8.00
During the last period, the company operated at 80% of capacity and produced 128,000 units. Actual
costs were:
Direct materials (760,000 lbs.) $1,558,000
Direct labor (126,000 hrs.) 1,014,300
Determine the direct materials price and quantity variances and the direct labor rate and efficiency
variances. Indicate whether each variance is favorable or unfavorable.
Direct materials:
Price variance
Quantity variance
Direct labor:
Rate variance
Efficiency variance
