Problem 21-4A (45 minutes)
Part 1
PHOENIX COMPANY
Flexible Budget Performance Report
For Year Ended December 31, 2013
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
Machinery repairs ……………………..
72,000
63,000
9,000
F
Utilities ……………………………………..
54,000
53,000
1,000
F
Packaging ………………………………...
90,000
87,500
2,500
F
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
Sales salary ……………………………...
250,000
268,000
18,000
U
Advertising expense ………………….
125,000
132,000
7,000
U
Salaries …………………………………….
241,000
241,000
0
Entertainment expense ……………..
90,000
93,500
3,500
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.
Financial & Managerial Accounting, 5th Edition
1204
Problem 21-4A (Continued)
Part 2
(a) Analysis of sales variance
Total
Per unit
Budgeted sales ……………………………………………………..
$3,600,000
$200.00
Actual sales ……………………………………………………….
3,648,000
202.67*
Sales variance (favorable) ……………………………………..
$ 48,000
$ 2.67
Interpretation: The sales variance is favorable because the actual price was
higher than planned.
* (rounded)
(b) Analysis of direct materials variance
Total
Per unit
Budgeted materials………………………………………………..
$1,170,000
$ 65.00
Actual materials used ……………………………………..……..
1,185,000
65.83
Direct materials variance (unfavorable) …………..……..
$ 15,000
$ 0.83
Problem 21-5A (60 minutes)
Part 1
Variable or Fixed Classification
Per unit
Amount
Variable costs (total divided by 15,000 units)
Indirect materials …………………………………………………………………..
$ 3.00
Indirect labor ………………………………………………………………………...
12.00
Power …………………………………………………………………………………...
3.00
Repairs and maintenance ……………………………………………………...
6.00
Total variable costs ……………………………………………………………….
$ 24.00
Fixed costs (per month)
Depreciation—Building ………………………………………………………….
$ 24,000
Depreciation—Machinery …………………………..…………………………..
80,000
Taxes and insurance ……………………………………………………………..
12,000
Supervision ……………………………………………………….………………….
79,000
Total fixed costs…………………………………………………………………….
$195,000
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
Indirect materials …………...
$ 3.00
$ 39,000
$ 45,000
$ 51,000
Indirect labor ………………....
12.00
156,000
180,000
204,000
Power …………………………..
3.00
39,000
45,000
51,000
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
Depreciation—Building …..
$ 24,000
24,000
24,000
24,000
Depreciation—Mach.……....
80,000
80,000
80,000
80,000
Taxes and insurance……....
12,000
12,000
12,000
12,000
Supervision …………………...
79,000
79,000
79,000
79,000
Total fixed costs ……………..
$195,000
195,000
195,000
195,000
Total overhead costs ………..
$507,000
$555,000
$603,000
Problem 21-5A (Continued)
Part 3 Direct Materials Variances
Preliminary computations
Actual material used:
91,000 lbs. (given)
Standard quantity of materials:
15,000 units x 6 lb./unit = 90,000 lb.
Actual price:
$5.10/lb. (given)
Standard price:
$5.00/lb. (given)
Direct material cost variances
Actual units at actual cost [91,000 lbs. @ $5.10] …………………………….…
$464,100
Standard units at standard cost [90,000 lbs. @ $5.00] ………………………
450,000
Direct material cost variance ………………………………………………………..…
$ 14,100 U
Direct Materials Price and Quantity Variances
Actual Costs
AQ x AP
AQ x SP
Standard Costs
SQ x SP
91,000 x $5.10
91,000 x $5.00
90,000 x $5.00
lbs. per lb.
lbs. per lb.
Lbs. per lb.
$464,100
$455,000
$450,000
$9,100 U
(Price variance)
$5,000 U
(Quantity variance)
(Total materials variance)
Problem 21-5A (Continued)
Part 4 Direct labor variances
Preliminary computations
Actual hours used:
30,500 hours (given)
Standard hours:
15,000 units x 2 hrs./unit = 30,000 hours
Actual rate:
$17.25/hr. (given)
Standard rate:
$17.00/hr. (given)
Direct labor cost variances
Actual units at actual cost [30,500 hrs. @ $17.25] ……………………….….
$526,125
Standard units at standard cost [30,000 hrs. @ $17.00] ……………….………….
510,000
Direct labor cost variance ………………………………………………………….……………..
$ 16,125 U
Direct Labor Rate and Efficiency Variances
Actual Costs
AH x AR
AH x SR
Standard Costs
SH x SR
30,500 x $17.25
30,500 x $17.00
30,000 x $17.00
hours per hr.
hours per hr.
hours per hr.
$526,125
$518,500
$510,000
$7,625 U
(Rate variance)
$8,500 U
(Efficiency variance)
$16,125 U
(Total labor variance)
Alternate solution format
Rate variance
=
AH x (AR – SR)
=
30,500 hours x ($17.25 – $17.00) per hour
=
30,500 x $0.25 per hour
=
$7,625 U
Efficiency variance
=
(AH – SH) x SR
=
(30,500 – 30,000) hours x $17.00 per hour
=
500 hours x $17.00 per hour
=
$8,500 U
Rate variance ……………..…..
$ 7,625 U
Efficiency variance ……..…..
8,500 U
Total …………………………..
$16,125 U
Financial & Managerial Accounting, 5th Edition
1208
Problem 21-5A (Concluded)
Part 5
ANTUAN COMPANY
Overhead Variance Report
For Month Ended October 31
Volume Variance
Expected production level ……………………………………………....
75% of capacity
Production level achieved ……………………………………………....
75% of capacity
Volume variance ……………………………………………………………..
none
Flexible
Actual
Controllable Variance
Budget
Results
Variances*
Variable overhead costs
Indirect materials …………………………..
$ 45,000
$ 44,250
$ 750
F
Indirect labor ……………………………….……..
180,000
177,750
2,250
F
Power ………………………………………….……..
45,000
43,000
2,000
F
Repairs and maintenance …………….……..
90,000
96,000
6,000
U
Total variable costs ……………………..……
360,000
361,000
1,000
U
Fixed overhead costs
Depreciation—Building ………………..……..
24,000
24,000
0
Depreciation—Machinery …………….……..
80,000
75,000
5,000
F
Taxes and insurance …………………………..
12,000
11,500
500
F
Supervision ………………………………………..
79,000
89,000
10,000
U
Total fixed costs …………………………..
195,000
199,500
4,500
U
Total overhead costs …………………….…….
$555,000
$560,500
$ 5,500
U
*F = Favorable variance; and U = Unfavorable variance.
Problem 21–6AA (80 minutes)
Part 1 Direct Materials Variances
Preliminary computations
Actual quantity of materials used:
138,000 lb. (given)
Standard quantity of materials:
9,000 units x 15 lbs./unit = 135,000 lb.
Actual price:
$3.75 (given)
Standard price:
$4.00 (given)
Direct materials cost variances
Actual units at actual cost [138,000 lbs. @ $3.75] ……………………
$517,500
Standard units at standard cost [135,000 lbs. @ $4.00] …………..
540,000
Direct material cost variance …………………………………………………
$ 22,500 F
Direct Materials Price and Quantity Variances
Actual Cost
AQ x AP
AQ x SP
Standard Cost
SQ x SP
138,000 x $3.75
138,000 x $4.00
135,000 x $4.00
lbs. per lb.
lbs. per lb.
lbs. per lb.
$517,500
$552,000
$540,000
$34,500 F
(Price variance)
$12,000 U
(Quantity variance)
$22,500 F
(Total materials variance)
Alternate solution format
Price variance
=
AQ x (AP – SP)
=
138,000 lb. x ($3.75 – $4.00) per lb.
=
138,000 x (-$0.25 per lb.)
=
$34,500 F
Quantity variance
=
(AQ – SQ) x SP
=
(138,000 – 135,000) x $4.00 per lb.
=
3,000 lb. x $4.00 per lb.
=
$12,000 U
Price variance …………….…..
$34,500 F
Quantity variance ……….…..
12,000 U
Total variance …………….…..
$22,500 F
Problem 21–6AA (Continued)
Part 2 Direct Labor Variances
Preliminary computations
Actual hours: 31,000 hrs. (given)
Direct labor cost variances
Actual units at actual cost [31,000 hrs. @ $15.10] ……………………….….
$468,100
Standard units at standard cost [27,000 hrs. @ $15.00] ……………….……
405,000
Direct labor cost variance ………………………………………………………….……
$ 63,100 U
Direct Labor Rate and Efficiency Variances
Actual Costs
AH x AR
AH x SR
Standard Costs
SH x SR
31,000 x $15.10
31,000 x $15.00
27,000 x $15.00
hours per hr.
hours per hr.
hours per hr.
$468,100
$465,000
$405,000
$3,100 U
(Rate variance)
$60,000 U
(Efficiency variance)
$63,100 U
(Total labor variance)
Alternate solution format
Rate variance
=
AH x (AR – SR)
=
31,000 hours x ($15.10 – $15.00) per hour
=
31,000 x $0.10 per hour
=
$ 3,100 U
Efficiency variance
=
(AH – SH) x SR
=
(31,000 – 27,000) hours x $15.00 per hour
=
4,000 hours x $15.00 per hour
=
$60,000 U
Rate variance ……………..…..
$ 3,100 U
Efficiency variance ……..…..
60,000 U
Total…………………………..
$63,100 U
Problem 21–6AA (Continued)
Part 3 Overhead Variances
(a) Variable overhead
Preliminary computations
Actual variable overhead (given):
Indirect materials …………………………………………..…….
$15,000
Indirect labor ……………………………………………………….
26,500
Power …………………………………………………………..…….
6,750
Maintenance ……………………………………………………….
4,000
Total …………………………………………………………….…….
$52,250
Actual hours:
31,000
(given)
Standard hours:
27,000
(from part 2)
Variable overhead cost variances
Variable overhead cost incurred [given] …………………………..
$52,250
Variable overhead cost applied [27,000 hrs. @ $2/hr.] ……………..
54,000
Variable overhead cost variance …………………………..………………..
$ 1,750 F
Variable Overhead Spending and Efficiency Variances
Actual Overhead
AH x AVR
AH x SVR
Applied Overhead
SH x SVR
31,000 x $2.00
27,000 x $2.00
hours per hr.
hours per hr.
$52,250
$62,000
$54,000
$9,750 F
(Spending variance)
$8,000 U
(Efficiency variance)
(Total variable overhead variance)
Budgeted direct labor hours
24,000 hours
Financial & Managerial Accounting, 5th Edition
1212
Problem 21–6AA (Continued)
(b) Fixed overhead
Preliminary computations
Actual fixed overhead (given):
Rent of factory building ………………………………………..
$15,000
Depreciation, machinery ……………………………………….
10,000
Supervisory salaries …………………………………………….
22,000
Total …………………………………………………………………..
$47,000
Budgeted fixed overhead:
$44,400
(given)
Fixed overhead cost variances
Fixed overhead cost incurred [given] …………………………..
$47,000
Fixed overhead cost applied [27,000 hrs. @ $1.85] ……….…………
49,950
Fixed overhead cost variance ……………………………………..…………
$ 2,950 F
Fixed Overhead Spending and Volume Variances
Actual Overhead
Budgeted Overhead
Fixed Overhead
Applied
27,000 x $1.85
hours per hr.
$47,000
$44,400
$49,950
$2,600 U
(Spending variance)
$5,550 F
(Volume variance)
$2,950 F
(Total fixed overhead variance)
(c) Total overhead controllable variance
Variable overhead spending variance ………………………………..…….
$9,750 F
Variable overhead efficiency variance ………………………………..…….
8,000 U
Fixed overhead spending variance …………………………………….…….
2,600 U
Total overhead controllable variance ……………………………………….
$ 850 U
Problem 21–6AA (Continued)
Part 4
KEGLER COMPANY
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
Indirect materials …………………………..
$16,875
$15,000
$1,875
F
Indirect labor …………………………….……….
27,000
26,500
500
F
Power ……………………………………….……….
6,750
6,750
0
Maintenance ……………………………..……….
3,375
4,000
625
U
Total variable costs …………………..………
54,000
52,250
1,750
F
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
Total fixed costs………………………..…
44,400
47,000
2,600
U
Total overhead costs …………………..………
$98,400
$99,250
$ 850
U
* F = Favorable variance; and U = Unfavorable variance.
Problem 21–7AA (45 minutes)
Part 1
Dec. 31*
Goods in Process Inventory …………………………..
100,000
Direct Materials Quantity Variance ……………….………….
3,000
Direct Materials Price Variance …………………………..
500
Raw Materials Inventory …………………………..
102,500
To record materials costs, including
the unfavorable quantity and
favorable price variances.
Dec. 31
Goods in Process Inventory …………………………..
95,800
Direct Labor Rate Variance …………………………..
1,200
Direct Labor Efficiency Variance ………….……………….
7,000
Factory Payroll ……………………………………………………….
90,000
To record direct labor costs, including
the favorable efficiency variance and
unfavorable rate variance.
Dec. 31
Goods in Process Inventory …………………………..
354,000
Controllable Variance ………………………………….………………….
9,000
Volume Variance ……………………………………………………….
12,000
Factory Overhead ……………………………….………………….
375,000
To record overhead costs, including
the unfavorable volume and unfavorable
controllable variances.
* Alternatively, some companies compute and record the price variance
when materials are purchased. This would yield two separate entries:
(1) Purchase of materials
Raw Materials Inventory ……………………………………………………….
103,000
Direct Materials Price Variance ……………….………….
500
Accounts Payable…………………………………..…………………..
102,500
(2) Issuance of materials into production
Goods in Process Inventory …………………………..
100,000
Direct Materials Quantity Variance ………………..…………
3,000
Raw Materials Inventory …………………………..
103,000
Problem 21–7AA (Continued)
Part 2
Under management by exception, the manager would first identify the largest
variances, attempt to uncover their causes, and then implement actions aimed
at correcting them. The smaller variances would be tackled after the major
problems were dealt with, if at all.
Financial & Managerial Accounting, 5th Edition
1216
PROBLEM SET B
Problem 21-1B (50 minutes)
Part 1 Direct Materials Variances
Direct materials cost variances
Actual units at actual cost [1,000,000 lbs. @ $4.25] ……………..……………
$4,250,000
Standard units at standard cost [1,050,000 lbs. @ $4.00] ……..……………………
4,200,000
Direct material cost variance ……………………………………………………….
$ 50,000 U
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
$250,000 U
(Price variance)
$200,000 F
(Quantity variance)
$50,000 U
(Total materials variance)
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
$1,937,500
$2,000,000
$2,016,000
$62,500 F
(Rate variance)
$16,000 F
(Efficiency variance)
$78,500 F
(Total labor variance)
Problem 21-1B (Continued)
Part 3 Overhead Variances
Overhead controllable variance
Actual overhead incurred [$1,960,000 + $1,200,000] …………….
$ 3,160,000
Budgeted overhead [from flexible budget] ………………………….
3,276,000
Controllable overhead cost variance ……………………….….
$ 116,000 F
Fixed overhead volume variance
Budgeted fixed overhead cost [at 80% capacity] ……..………….
$ 2,016,000
Fixed overhead cost applied [252,000 hrs. @ $7] ……..………….
1,764,000
Fixed overhead cost variance …………………………………………….
$ 252,000 U