Problem 21-1B (Continued)
Part 2
TOHONO 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 18,000
Budget for
Unit Sales
of 24,000
Sales……………..………………… $150.00 $2,700,000 $3,600,000
Variable costs
Shipping…………..….…….…. 5.80 104,400 139,200
Total variable….................. 88.15 1,586,700 2,115,600
Contribution margin…......... $ 61.85 1,113,300 1,484,400
Fixed costs
Depreciation—Mach........... $ 250,000 250,000 250,000
Utilities….….….…….……...... 150,000 150,000 150,000
Total fixed costs…............. $1,112,000 1,112,000 1,112,000
Income from operations….…. $ 1,300 $ 372,400
Problem 21-1B (Continued)
Part 3
Operating income increase for a 20,000 to 28,000 unit sales increase
Potential sales (units)……………………………..…..…….….…….…. 28,000 Units
vs. Budgeted income for 2015………………………….….…….…... 125,000
Potential increase in income……………………………….……..…...$ 494,800*
Part 4
Operating income (loss) at 14,000 units
Potential sales (units)……………………………..…..…….….…….…. 14,000
Contribution margin per unit…………..……………..………………..x $61.85
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Financial and Managerial Accounting, 6th Edition
1264
Problem 21-2B (60 minutes)
Part 1
TOHONO COMPANY
Flexible Budget Performance Report
For Year Ended December 31, 2015
Flexible Actual
Budget Results Variances*
Sales (24,000 units)…………..…….….. $3,600,000 $3,648,000 $48,000 F
Variable costs
Packaging……………………..…….…... 96,000 90,000 6,000 F
Shipping ………….………………………. 139,200 124,000 15,200 F
Total variable costs………….……….. 2,115,600 2,098,000 17,600 F
Contribution margin……………..…….. 1,484,400 1,550,000 65,600 F
Fixed costs
Depreciation—Machinery………….. 250,000 250,000 0
Utilities……………….……………….…… 150,000 154,000 4,000 U
Plant management salaries.......... 140,000 155,000 15,000 U
Total fixed costs………….………….… 1,112,000 1,157,000 45,000 U
Income from operations…............... $ 372,400 $ 393,000 $20,600 F
*F = Favorable variance; and U = Unfavorable variance
Problem 21-2B (Continued)
Part 2
(a) Analysis of sales variance
Total Per unit
Budgeted sales…………….………………………………….…….$3,600,000 $150.00
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……….…………………..……………….….$1,440,000 $ 60.00
* (rounded)
Interpretation: The direct materials variance is favorable for two possible
Financial and Managerial Accounting, 6th Edition
Problem 21-3B (60 minutes)
Part 1
Variable costs (total divided by 15,000 units) Per Unit
Amount
Indirect materials………………………………… $ 1.50
Indirect labor……………………………………… 6.00
Fixed costs (total) Total
Amount
Depreciation—Building………………………… $ 24,000
Depreciation—Machinery……………………… 72,000
Taxes and insurance…………………………… 18,000
Problem 21-3B (Continued)
Part 2
SUNCOAST COMPANY
Flexible Overhead Budgets
For Month Ended December 31
Flexible Budget Flexible Flexible Flexible
Variable
Amount
per Unit
Total
Fixed
Cost
Budget for
Unit Sales
of 13,000
Budget for
Unit Sales
of 15,000
Budget for
Unit Sales
of 17,000
Variable overhead costs
Indirect materials……..….........$ 1.50 $ 19,500 $ 22,500 $ 25,500
Repairs and maintenance...... 3.00 39,000 45,000 51,000
Total variable costs……………..$12.00 156,000 180,000 204,000
Fixed overhead costs
Depreciation—Building…....... $ 24,000 24,000 24,000 24,000
Depreciation—Machinery……. 72,000 72,000 72,000 72,000
Taxes and insurance…………… 18,000 18,000 18,000 18,000
Financial and Managerial Accounting, 6th Edition
Problem 21-3B (Continued)
Part 3 Direct Materials Variances
Preliminary computations
Actual material used: 69,000 lbs. (given)
Standard quantity of materials: 15,000 units x 4.5 lb./unit = 67,500 lb.
Standard units at standard cost [67,500 lbs. @ $6.00]……..…….… 405,000
Direct material cost variance…….……..…….…….…….………..…..……. $ 15,900 U
Direct Materials Price and Quantity Variances
Actual Costs
AQ x AP AQ x SP
Standard Costs
SQ x SP
$15,900 U
(Total materials variance)
Alternate solution format
Price variance = AQ x (AP – SP)
= 69,000 lb. x ($6.10 – $6.00) per lb.
Price variance……….......…... $ 6,900 U
Quantity variance…..…........ 9,000 U
Total variance..........…......... $15,900 U
Problem 21-3B (Continued)
Part 4 Direct labor variances
Preliminary computations
Actual hours used: 22,800 hours (given)
Direct labor cost variance…….…….……..…………..…….……..…….……..………………..$ 10,440 U
Direct Labor Rate and Efficiency Variances
$280,440 $273,600 $270,000
$6,840 U
(Rate variance)
$3,600 U
(Efficiency variance)
Alternate solution format
Rate variance = AH x (AR – SR)
= 22,800 hours x ($12.30 – $12.00) per hour
= 22,800 x $0.30 per hour
= $ 6,840 U
Rate variance…………..…...... $ 6,840 U
Efficiency variance…......….. 3,600 U
Total……………………………….. $10,440 U
Financial and Managerial Accounting, 6th Edition
Problem 21-3B (Concluded)
Part 5
SUNCOAST COMPANY
Overhead Variance Report
For Month Ended December 31
Volume Variance
Expected production level………………….……………………………75% of capacity
Production level achieved…………….……………..………….……...75% of capacity
Volume variance………………………………………………..….…….…. 0
Flexible Actual
Controllable Variance Budget Results Variances*
Variable overhead costs
Indirect materials………………..….…….…...$ 22,500 $ 21,600 $ 900 F
Indirect labor……………….…..…….….….….. 90,000 82,260 7,740 F
Fixed overhead costs
Depreciation—Building……….…….….…… 24,000 24,000 0
Depreciation—Machinery…………………... 72,000 75,000 3,000 U
Taxes and insurance……………….…………. 18,000 16,500 1,500 F
*F = Favorable variance; and U = Unfavorable variance
Problem 21-4B (50 minutes)
Part 1 Direct Materials Variances
Direct materials cost variances
Direct Materials Price and Quantity Variances
Actual Cost
AQ x AP AQ x SP
Standard Cost
SQ x SP
1,000,000 x $4.25 1,000,000 x $4.00 1,050,000 x $4.00
$4,250,000 $4,000,000 $4,200,000
Part 2 Direct Labor Variances
Direct labor cost variances
Actual units at actual cost [250,000 hrs. @ $7.75]…………..……..…..……………….$1,937,500
Standard units at standard cost [252,000 hrs. @ $8.00]……..…….……………..….. 2,016,000
Direct labor cost variance…….…….……..…………..…….……..…….……..………………..$ 78,500 F
Direct Labor Rate and Efficiency Variances
Actual Cost
AH x AR AH x SR
Standard Cost
SH x SR
250,000 x $7.75 250,000 x $8.00 252,000 x $8.00
Financial and Managerial Accounting, 6th Edition