EX
Exercise 21-21 (25 minutes)
Preliminary calculations:
Variable overhead rate per DL hour = $48,000/24,000 = $2 per hour
Standard number of DL hours = 9,000 units x 3 hrs. per unit = 27,000 hrs.
Part 1
Total actual overhead (given) ………………………… $99,250
Flexible budget overhead
Variable ($2 per hour x 27,000 hours)…..….............. $54,000
Part 2
Total budgeted fixed overhead (given) ………………
$44,400
Exercise 21-21 (continued)
Part 3
JAMES CORP.
Overhead Variance Report
For Month Ended May 31
Volume Variance
Flexible Actual
Controllable Variance Budget Results Variances*
Variable overhead costs
Indirect materials………………..….………....$16,875 $15,000 $1,875 F
Indirect labor……………….…..……….….…...27,000 26,500 500 F
Power………….………………………….….….….6,750 6,750 0
Fixed overhead costs
Rent of factory building…..………............15,000 15,000 0
Depreciation—Machinery…………………...10,000 10,000 0
Supervisory salaries………………………….. 19,400 22,000 2,600 U
Financial and Managerial Accounting, 6th Edition
Exercise 21-22 (25 minutes)
Preliminary calculations:
Variable overhead rate per DL hour = $32,000/32,000 = $1 per hour
Standard number of DL hours = 9,000 units x 4 hrs. per unit = 36,000 hrs.
Part 1
Total actual overhead (given) ………………………… $81,700
Flexible budget overhead
Variable ($1 per hour x 36,000 hours)…..….............. $36,000
Part 2
Total budgeted fixed overhead (given) ………………
$48,000
Exercise 21-22 (continued)
Part 3
BLAZE CORP.
Overhead Variance Report
For Month Ended March 31
Volume Variance
Flexible Actual
Controllable Variance Budget Results Variances*
Variable overhead costs
Indirect materials…………….………..$11,250 $10,000 $1,250 F
Indirect labor…………….……….……..18,000 16,000 2,000 F
Depreciation—Machinery…………..20,000 19,200 800 F
Taxes and insurance…………………. 2,400 3,000 600 U
Supervisory salaries…………………. 13,600 14,000 400 U
* F = Favorable variance; and U = Unfavorable variance.
Financial and Managerial Accounting, 6th Edition
Exercise 21-23 (25 minutes)
1. Sales price and sales volume variances
Sales Actual Sales Flexible Budget Fixed Budget
Units 350 350 365
Price/unit $1,200 $1,100 $1,100
2. Interpretation
The $35,000 favorable sales price variance implies it sold computers for a
PROBLEM SET A
Problem 21-1A (60 minutes)
Part 1
Variable or Fixed Classification
Amount
per unit
Variable sales (total divided by 15,000 units)
Sales……………………………………………….……………………………..….…. $ 200.00
Variable costs (total divided by 15,000 units)
Direct materials……………..……………………………………..….……….….. $ 65.00
Direct labor……………..………………..………………….………….……….….. 15.00
Fixed costs
Depreciation—Plant equipment…………….……………….…………….... $ 300,000
Utilities ($195,000 – $45,000 variable)…………….………………….……. 150,000
Plant management salaries……………….………………..……………….… 200,000
Sales salary…………..…………………..…………………..….…….……….….. 250,000
Financial and Managerial Accounting, 6th Edition
Problem 21-1A (Continued)
Part 2
PHOENIX COMPANY
Flexible Budgets
For Year Ended December 31, 2015
Flexible Budget Flexible Flexible
Variable
Amount
per Unit
Total
Fixed
Cost
Budget for
Unit Sales
of 14,000
Budget for
Unit Sales
of 16,000
Sales……………..………………… $200.00 $2,800,000 $3,200,000
Variable costs
Direct materials................. 65.00 910,000 1,040,000
Total variable costs…........ 99.00 1,386,000 1,584,000
Contribution margin…......... $101.00 1,414,000 1,616,000
Fixed costs
Depreciation—Plant Equip.... $ 300,000 300,000 300,000
Utilities….….……….……....... 150,000 150,000 150,000
Plant mgmt. salaries......... 200,000 200,000 200,000
Entertainment expense..... 90,000 90,000 90,000
Total fixed costs…............. $1,356,000 1,356,000 1,356,000
Income from operations….…. $ 58,000 $ 260,000
Problem 21-1A (Continued)
Part 3
Operating income increase for a 15,000 to 18,000 unit sales increase
Possible sales (units)……………………………………………………… 18,000 Units
Contribution margin per unit…………..……………………………….x $101
Total contribution margin……………….…………………..……….….$1,818,000
*Alternate solution format
Unit increase………………………………………………………………………..…..…. 3,000 Units
Contribution margin per unit………………………………………………..………. x $101
Increase in contribution margin………..……..……………..…........…...........$303,000
Since there is no increase in fixed costs, the expected increase in operating
income is the same $303,000.
Part 4
Operating income (loss) at 12,000 units
Possible sales (units)……………………………………………………… 12,000 Units
Contribution margin per unit…………..……………………………….x $101
Financial and Managerial Accounting, 6th Edition
Problem 21-2A (45 minutes)
Part 1
PHOENIX COMPANY
Flexible Budget Performance Report
For Year Ended December 31, 2015
Flexible Actual
Budget Results Variances*
Sales (18,000 units)…………..………... $3,600,000 $3,648,000 $48,000 F
Variable costs
Shipping ………….…………………….… 126,000 118,500 7,500 F
Total variable costs…………………… 1,782,000 1,785,000 3,000 U
Contribution margin……………..…….. 1,818,000 1,863,000 45,000 F
Fixed costs
Depreciation—Plant equip…......... 300,000 300,000 0
Utilities……………….………..….…….… 150,000 147,500 2,500 F
Plant management salaries.......... 200,000 210,000 10,000 U
Total fixed costs………………….……. 1,356,000 1,392,000 36,000 U
Income from operations…............... $ 462,000 $ 471,000 $ 9,000 F
*F = Favorable variance; and U = Unfavorable variance.
Problem 21-2A (Continued)
Part 2
(a) Analysis of sales variance
Total Per unit
Budgeted sales…………….………………………………………..$3,600,000 $200.00
* (rounded)
Interpretation: The sales variance is favorable because the actual price was
higher than planned.
(b) Analysis of direct materials variance
Total Per unit
Budgeted materials……….…………………..……………….….$1,170,000 $ 65.00
Interpretation: The direct materials variance is unfavorable for two
possible reasons. (1) The quantity of materials used may have been more
Financial and Managerial Accounting, 6th Edition