Chapter 23 – Flexible Budgets and Standard Costs
Problem 23-1B (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
Direct materials................. 60.00 1,080,000 1,440,000
Direct labor…….….….......... 13.00 234,000 312,000
Machinery repairs………….. 2.85 51,300 68,400
Fixed costs
Depreciation—Mach........... $ 250,000 250,000 250,000
Utilities…….…..….….….….... 150,000 150,000 150,000
Plant mgmt. salaries......... 140,000 140,000 140,000
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Chapter 23 – Flexible Budgets and Standard Costs
Problem 23-1B (Continued)
Part 3
Operating income increase for a 20,000 to 28,000 unit sales increase
Potential sales (units)……………………………………..….….….…... 28,000 Units
Contribution margin per unit…………………………………………... x $61.85
Total contribution margin………………………………..….….….…... $1,731,800
*Alternate solution format
Unit increase…..……………………..…………….…..……..…..……..….. 8,000 Units
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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Education.
Chapter 23 – Flexible Budgets and Standard Costs
Problem 23-2B (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
Direct materials……………..….….….. 1,440,000 1,400,000 40,000 F
Direct labor…………………..….….…... 312,000 360,000 48,000 U
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
Income from operations…............… $ 372,400 $ 393,000 $20,600 F
*F = Favorable variance; and U = Unfavorable variance
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Chapter 23 – Flexible Budgets and Standard Costs
Problem 23-2B (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
reasons. (1) The quantity of materials used might have been less than the
Problem 23-3B (60 minutes)
Part 1
Variable costs (total divided by 15,000 units) Per Unit
Amount
Indirect materials………………………………… $ 1.50
Indirect labor……………………………………… 6.00
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Chapter 23 – Flexible Budgets and Standard Costs
Fixed costs (total) Total
Amount
Depreciation—Building………………………… $ 24,000
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Chapter 23 – Flexible Budgets and Standard Costs
Problem 23-3B (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
Depreciation—Building.......... $ 24,000 24,000 24,000 24,000
Depreciation—Machinery….… 72,000 72,000 72,000 72,000
Problem 23-3B (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.
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Chapter 23 – Flexible Budgets and Standard Costs
Direct Materials Price and Quantity Variances
Actual Costs
AQ x AP AQ x SP
Standard Costs
SQ x SP
$420,900 $414,000 $405,000
Alternate solution format
Price variance = AQ x (AP – SP)
= 69,000 lb. x ($6.10 – $6.00) per lb.
= 69,000 lb. x ($0.10) per lb.
= $ 6,900 U
Total variance.…..…….......... $15,900 U
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Chapter 23 – Flexible Budgets and Standard Costs
Problem 23-3B (Continued)
Part 4 Direct labor variances
Preliminary computations
Actual hours used: 22,800 hours (given)
Direct labor cost variances
Actual units at actual cost [22,800 hrs. @ $12.30]………………….…….……………..$280,440
Direct Labor Rate and Efficiency Variances
Actual Costs
AH x AR AH x SR
Standard Costs
SH x SR
(Rate variance)
(Efficiency variance)
$10,440 U
(Total labor 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
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Chapter 23 – Flexible Budgets and Standard Costs
Problem 23-3B (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
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
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