Chapter 23 – Flexible Budgets and Standard Costs
Exercise 23-21 (continued)
Part 3
JAMES CORP.
Overhead Variance Report
For Month Ended May 31
Volume Variance
Expected production level…………………………………………….80% of capacity
Production level achieved………………………………….….……..90% of capacity
Volume variance……………………………………………..…….….….$5,550 (favorable)
Flexible Actual
Controllable Variance Budget Results Variances*
Variable overhead costs
Fixed overhead costs
Rent of factory building..….….……..........15,000 15,000 0
Depreciation—Machinery……………………10,000 10,000 0
* F = Favorable variance; and U = Unfavorable variance.
Exercise 23-22 (25 minutes)
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Chapter 23 – Flexible Budgets and Standard Costs
Preliminary calculations:
Variable overhead rate per DL hour = $32,000/32,000 = $1 per hour
Part 1
Total actual overhead (given) ………………………… $81,700
Flexible budget overhead
Part 2
Total budgeted fixed overhead (given) ………………
$48,000
Exercise 23-22 (continued)
Part 3
BLAZE CORP.
Overhead Variance Report
For Month Ended March 31
Volume Variance
Expected production level…………………………………...80% of capacity
Flexible Actual
Controllable Variance Budget Results Variances*
Variable overhead costs
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Chapter 23 – Flexible Budgets and Standard Costs
Power…………………….….…….….…... 4,500 4,500 0
Maintenance…………..….….…….…... 2,250 3,000 750 U
Total variable costs…………………...36,000 33,500 2,500 F
Fixed overhead costs
Rent of factory building................12,000 12,000 0
* F = Favorable variance; and U = Unfavorable variance.
Exercise 23-23 (25 minutes)
1. Sales price and sales volume variances
Sales Actual Sales Flexible Budget Fixed Budget
Units 350 350 365
2. Interpretation
The $35,000 favorable sales price variance implies it sold computers for a
PROBLEM SET A
Problem 23-1A (60 minutes)
Part 1
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Education.
Chapter 23 – Flexible Budgets and Standard Costs
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
Machinery repairs…………………………………………….….…….….……... 4.00
Fixed costs
Depreciation—Plant equipment………………………………………….….. $ 300,000
Utilities ($195,000 – $45,000 variable)……………………………..…….… 150,000
Plant management salaries………………………………………………..….. 200,000
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Chapter 23 – Flexible Budgets and Standard Costs
Problem 23-1A (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
Shipping………..….….…….… 7.00 98,000 112,000
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
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
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Chapter 23 – Flexible Budgets and Standard Costs
Problem 23-1A (Continued)
Part 3
Operating income increase for a 15,000 to 18,000 unit sales increase
Possible sales (units)……………………………………………………... 18,000 Units
*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
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Chapter 23 – Flexible Budgets and Standard Costs
Problem 23-2A (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
Direct materials……………..….….….. 1,170,000 1,185,000 15,000 U
Direct labor…………………..….…….… 270,000 278,000 8,000 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
Income from operations…............... $ 462,000 $ 471,000 $ 9,000 F
*F = Favorable variance; and U = Unfavorable variance.
Problem 23-2A (Continued)
Part 2
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Education.
Chapter 23 – Flexible Budgets and Standard Costs
(a) Analysis of sales variance
Total Per unit
* (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
might have been more than the budgeted purchase price.
Problem 23-3A (60 minutes)
Part 1
Variable or Fixed Classification Amount
Variable costs (total divided by 15,000 units)
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Education.
Chapter 23 – Flexible Budgets and Standard Costs
Fixed costs (per month)
Part 2
ANTUAN COMPANY
Flexible Overhead Budgets
For Month Ended October 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
Repairs and maint………..…. 6.00 78,000 90,000 102,000
Total variable costs………….$24.00 312,000 360,000 408,000
Fixed overhead costs
Total overhead costs............ $507,000 $555,000 $603,000
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