Chapter 23 – Flexible Budgets and Standard Costs
EXERCISES
Exercise 23-1 (20 minutes)
Item Cost
a. Bike frames Variable
b. Screws for assembly Variable
g. Incoming shipping expenses* Variable
h. Taxes on property Fixed
i. Office supplies (This item can be a variable cost, but it usually is
not because it doesn’t often change in direct proportion to changes in
Fixed
incoming shipments, not production.
** Gas used for heating is often a mixed cost rather than strictly variable.
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Education.
Chapter 23 – Flexible Budgets and Standard Costs
Exercise 23-2 (30 minutes)
TEMPO COMPANY
Flexible Budgets
For Quarter Ended March 31, 2015
Flexible Budget Flexible Flexible Flexible
Variable
Amount
per Unit*
Total
Fixed
Cost
Budget for
Unit Sales
of 6,000
Budget for
Unit Sales
of 7,000
Budget for
Unit Sales
of 8,000
Sales……………..…....…..…...
$400.00 $2,400,000 $2,800,000 $3,200,000
Variable costs
Direct materials…….......... 40.00 240,000 280,000 320,000
Direct labor..………………… 70.00 420,000 490,000 560,000
Contribution margin….......
$223.00 1,338,000 1,561,000 1,784,000
Fixed costs
Plant manager salary....... $ 65,000 65,000 65,000 65,000
Advertising…..…..…..…..... 125,000 125,000 125,000 125,000
Admin. salaries…………….. 85,000 85,000 85,000 85,000
* Equals total variable costs divided by the volume of 7,000 units.
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Education.
Chapter 23 – Flexible Budgets and Standard Costs
Exercise 23-3 (25 minutes)
SOLITAIRE COMPANY
Flexible Budget Performance Report
For Month Ended June 30
Flexible Actual
Budget Results Variances
Sales (10,800 units)………..…..………. $540,000 $540,000 $ 0
Variable expenses……………..……….. 378,000 351,000 27,000 F
Supporting computations
Flexible budget sales…………..……………………………….……….$ 540,000
Total fixed budget variable expenses…………….….….….…...$ 294,000
Total units budgeted……………………………….………………….…÷ 8,400
Budgeted variable expenses…………..…………..….….….…..…$35 per unit
Flexible budget units……………..…………………….….….…..…...× 10,800
Flexible budget variable expenses………….….…..….….….….$ 378,000
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Chapter 23 – Flexible Budgets and Standard Costs
Exercise 23-4 (25 minutes)
BAY CITY COMPANY
Flexible Budget Performance Report
For Month Ended July 31
Flexible Actual
Budget Results Variances
Sales (7,200 units)…………...……….... $720,000 $737,000 $17,000 F
Variable expenses……………..……….. 468,000 483,000 15,000 U
Supporting computations
Flexible budget units……………..…….….….….…..….…..× 7,200
Flexible budget sales…………..……………………..….…...$ 720,000
Total fixed budget variable expenses…….….….........$ 487,500
Total units budgeted……………………….….….…..….…...÷ 7,500
Budgeted variable expenses…………..……………………$ 65 per unit
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Chapter 23 – Flexible Budgets and Standard Costs
Exercise 23-5 (10 minutes)
Exercise 23-6 (5 minutes)
Following management by exception, the company should focus on those
variances that exhibit the greatest differences from the standard. This would
Exercise 23-7 (15 minutes)
Exercise 23-8 (10 minutes)
(1) The standard cost for one unit is computed as:
Direct materials (6 lbs. @$8 per lb.)…………….………..………..………. $ 48
Chapter 23 – Flexible Budgets and Standard Costs
Total actual manufacturing costs……………………………………..…………..…..$849,900
Standard overhead costs to produce actual activity:
Total actual manufacturing costs ………………………………..…..…………..…..
Total standard manufacturing costs……………………………..………..…………
$849,900
840,000
Total cost variance (unfavorable) ………………………………..………..………....$ 9,900
Exercise 23-9 (15 minutes)
Direct materials price variance:
Direct materials quantity variance:
*8,000 units x 6 pounds per unit = 48,000 pounds
Exercise 23-10 (15 minutes)
Direct labor rate variance:
Actual hours x Actual rate per hour (15,700 x $16.50)…………………..…….$259,050
Actual hours x Standard rate per hour (15,700 x $16.00)………………….... 251,200
Direct labor rate variance (unfavorable)…………………….………..………..…..$ 7,850
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Chapter 23 – Flexible Budgets and Standard Costs
Direct labor efficiency variance:
Exercise 23-11 (25 minutes)
Part 1
Direct materials price variance:
Actual cost of direct materials used (138,000 x $3.75)…………....………….$517,500
Actual quantity used x Standard price (138,000 x $4.00)..………..………... 552,000
Direct materials price variance (favorable)…………………………………….….. 34,500
Direct materials quantity variance:
*9,000 units x 15 pounds per unit = 135,000 pounds
Exercise 23-11 (continued)
Part 2 Direct labor rate variance:
Actual hours x Actual rate per hour (31,000 x $15.10)…………………..…….$468,100
Actual hours x Standard rate per hour (31,000 x $15.00)………………….... 465,000
Direct labor rate variance (unfavorable)…………………….………..………..…..$ 3,100
Direct labor efficiency variance:
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Chapter 23 – Flexible Budgets and Standard Costs
Standard hours x Standard rate per hour (27,000** x $15.00)……………… 405,000
Direct labor efficiency variance (unfavorable)…………….………..………..….$ 60,000
**9,000 units x 3 hours per unit = 27,000 hours
Exercise 23-12 (25 minutes)
Part 1 Direct materials price variance:
Direct materials quantity variance:
Part 2 Direct labor rate variance:
Actual hours x Actual rate per hour (37,600 x $6.05)……………………..…...$227,480
Actual hours x Standard rate per hour (37,600 x $6.00)…………………..…. 225,600
Direct labor rate variance (unfavorable)…………………….………..………..…..$ 1,880
Direct labor efficiency variance:
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Chapter 23 – Flexible Budgets and Standard Costs
Exercise 23-13 (30 minutes)
1. Preliminary computations
Actual quantity: 22,000 bd. ft. (given)
Direct material cost variances
Actual units at actual cost [22,000 bd. ft. @ $12.10]………………..………….$266,200
Direct material cost variance…………………………………..……..…………..…….$ 21,800 F
Price and quantity variances
Actual Cost
AQ x AP AQ x SP
Standard Cost
SQ x SP
$266,200 $264,000 $288,000
$21,800 F
(Total materials variance)
Alternate solution format
Price variance = AQ x (AP – SP)
= 22,000 board feet x ($12.10 – $12.00)
= $2,200 U
2. The unfavorable price variance means the actual price paid is more than
the budgeted price. The favorable quantity variance means the actual
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