Chapter 21
QUESTIONS
1. Fixed budget performance reports have limited usefulness because they do not reflect
2. The primary purpose of a flexible budget is to help managers better evaluate past
3. The proper title is:
Spalding Company
4. A flexible budget performance report is useful for an analysis of the difference between
5. A variable cost implies a constant per unit cost for each unit produced or sold within
6. The human resource department is usually responsible for a labor rate variance. The
production department is usually responsible for a labor efficiency variance. However,
7. A price variance is that portion of a cost variance caused by a difference between the
8. Standard costs are used to establish a basis to assess the reasonableness of actual
9. An overhead volume variance is the difference between (a) the amount of (fixed)
overhead that would have been budgeted at the actual operating level achieved during
10. A predetermined standard overhead rate is a measure computed and used in a standard
cost system to assign overhead costs to products. Before the period begins, budgeted
11. In general, variance analysis is said to provide information about price and quantity
12. A controllable variance is the difference between (a) the total overhead cost actually
incurred in the period and (b) the total overhead cost that would have been budgeted at
13. Standard costs provide a basis for evaluating actual performance. Summary
information comparing actual costs to budgeted costs is captured and reported in a
14. Before a period starts, the manager can prepare flexible budgets for the various types of
advertising. Then, she could estimate both the best and worst case scenarios for the
15. Apple schedules appointments with customers to service Apple computers, iPhones,
16. The controllable variance should not be affected by achieving an actual operating level
different from the budgeted level. If the company operated at 75% of capacity, a
controllable variance will arise only if the actual overhead cost is different from the
QUICK STUDIES
Quick Study 21-1 (15 minutes)
BEECH COMPANY
Flexible Budget Performance Report
For Month Ended May 31
Flexible
Actual
Budget
Results
Variances
Sales ………………………………………..…
$1,300,000
$1,275,000
$25,000
U
Variable costs …………………………..
750,000
712,500
37,500
F
Contribution margin ………………….…
550,000
562,500
12,500
F
Fixed costs ……………………………….…
300,000
300,000
0
Income from operations ………………
$ 250,000
$ 262,500
$12,500
F
Quick Study 21-2 (5 minutes)
Fixed costs (unchanged) ………………………………………………………..…………
$300,000
Variable costs [($246,000/24,000) x 20,000 units] …………………….…….
205,000
Total budgeted costs (flexible budget) ………………………………………………
$505,000
Quick Study 21-3 (10 minutes)
From the flexible budget at 20,000 units, compute the sales price and variable
costs per unit:
Sales (26,000 x $20.00) ………………………………………………………………………
Quick Study 21-4 (10 minutes)
BRODRICK COMPANY
Flexible Budget Performance Report
For Year Ended December 31
Flexible
Actual
Budget
Results
Variances
Sales (26,000 units)…………………..…
$520,000
$480,000
$40,000
U
Variable expenses…………………….…
104,000
112,000
8,000
U
Contribution margin ……………………
416,000
368,000
48,000
U
Fixed expenses ………………………..…
150,000
145,000
5,000
F
Income from operations ………………
$266,000
$223,000
$43,000
U
Quick Study 21-5 (5 minutes)
A standard cost card for one bat would include:
Direct materials (1 kg @$18 per kg) ………………………………………....
$18
Direct labor (0.25 hours @$20 per hour) …………………………………...
5
Overhead (0.25 labor hours @$40 per hour) ……………………………..
10
Total ………………………………………………………………………………………..
$33
Quick Study 21-6 (5 minutes)
Actual cost for one bat …………………………..………………………………..
$40
Standard cost for one bat (from QS 21-5) ………………………………....
33
Cost variance …………………………………………………………………………..
$ 7
As the actual costs are greater than the standard costs, the cost variance is
unfavorable.
Quick Study 21-7 (10 minutes)
1. Management by exception involves managers focusing on the most
significant variances for analysis and action strategies. It also results in
2. Management often uses standard costs to compute these variances. Since
standard costs are used by managers to focus on the areas in which actual
Quick Study 21-8 (10 minutes)
Direct materials price variance:
Actual cost of direct materials used (given) …………………………....…………
$535,000
Actual quantity used x Standard price (300,000 x $2) …………………………
600,000
Direct materials price variance (favorable) …………………………………………
$ 65,000
Direct materials quantity variance:
Actual quantity used x Standard price (300,000 x $2) …………………………
$600,000
Standard quantity x Standard price (60,000 x 4 x $2) ……………….…………
480,000
Direct materials quantity variance (unfavorable) ……………………..……
$120,000
Quick Study 21-9 (15 minutes)
Following information is given
Actual price per pound …………………………………………………………..…………
$ 78.00
Standard price per pound ……………………………………………………….
77.50
Material price variance per pound (unfavorable) ……………………..……
$ 0.50
It is also known that:
Material price variance = Price variance per pound x Actual pounds used
Actual pounds used = Material price variance / Price variance per pound
Therefore, substituting with the information given above:
Actual pounds used = $4,000 / $0.50
= 8,000 pounds
Quick Study 21–10 (10 minutes)
Standard direct materials cost ………………………………………………....
$150,000
Materials price variance (favorable) ………………………………………....
(12,000)
Materials quantity variance (favorable) ……………………………………..
(2,000)
Actual total direct materials cost ……………………………………………...
$136,000
Quick Study 21–11 (10 minutes)
Direct labor rate variance:
Actual hours x Actual rate per hour (65,000 x $15) …………………..………
$975,000
Actual hours x Standard rate per hour (65,000 x $14) …………………………
910,000
Direct labor rate variance (unfavorable) ………………………………….…………
$ 65,000
Direct labor efficiency variance:
Actual hours x Standard rate per hour (65,000 x $14) …………………………
$910,000
Standard hours x Standard rate per hour (67,000 x $14) ………….…………
938,000
Direct labor efficiency variance (favorable) ……………………………..…………
$ 28,000
Quick Study 21–12 (10 minutes)
Standard direct labor cost ……………………………………………………….
$400,000
Labor rate variance (unfavorable) …………………………………………....
20,000
Labor efficiency variance (unfavorable) …………………………………...
10,000
Actual total direct labor cost …………………………………………………....
$430,000
Quick Study 21-13 (10 minutes)
Actual overhead incurred ……………………………………………………….
$262,800
Less: Applied overhead (based on flexible budget)
Variable overhead (110,000 x $1.40*)…………………………………….…………
Fixed overhead (unchanged) …………………………..………………….……….
Controllable overhead variance (favorable) …………………………....…………
154,000
124,000
$ 15,200
*$162,400/116,000 units = $1.40 variable overhead rate per unit
Quick Study 21-14 (10 minutes)
Actual overhead incurred ……………………………………………………….
$ 28,175
Less: Applied overhead (based on flexible budget)
Variable overhead (9,800 x $3.10) ……………………………………………………
Fixed overhead (unchanged) …………………………..………………….……….
Controllable overhead variance (favorable) …………………………....…………
30,380
12,000
$(14,205)
Quick Study 21–15 (5 minutes)
Budgeted fixed overhead (at 12,000 units) …………………………………………
$12,000
Fixed overhead applied to production (9,800 x $1) …………………..………
Volume variance (favorable) …………………………………………………..…..
9,800
$ 2,200
Quick Study 21–16 (10 minutes)
Standard overhead cost …………………………………………………………….……..
$225,000
Overhead volume variance (favorable) ……………………………………….……..
(20,000)
Overhead controllable variance (unfavorable) …………………………....……..
60,400
Actual total overhead cost …………………………..…………………………….……..
$265,400
Quick Study 21–17A (10 minutes)
Work in Process Inventory ………………………………………..…….
225,000
Controllable Variance ……………………………………………….…….
60,400
Volume Variance …………………………………………………….
20,000
Factory Overhead ……………………………………………..…….
265,400
To apply overhead and to record overhead variances.
Quick Study 21–18 (10 minutes)
Actual variable overhead (4,700 x $4.15)* …………………………………………..
$19,505
Applied variable overhead (5,000 x $4.00)** …………………………….………..
20,000
Total variable overhead cost variance …………………………..…………………..
$ 495 F
*Actual machine hours x Actual variable overhead rate
**Standard machine hours x Standard variable overhead rate
Quick Study 21-19A (15 minutes)
Variable overhead spending and efficiency variances
Actual Overhead
AH x AVR
AH x SVR
Applied Overhead
SH x SVR
(4,700 x $4.15)
4,700 x $4.00
5,000 x $4.00
hours per hour
hours per hour
hours per hour
$19,505
$18,800
$20,000
$705 U
(Spending variance)
$1,200 F
(Efficiency variance)
$495 F
(Total variable overhead variance)
Quick Study 21-20 (15 minutes)
Sales
Actual
Flexible Budget
Fixed Budget
Units
50
50
45
Price per
unit
$9,000
$9,500
$9,500
Total
dollars
(50 x $9,000)
(50 x $9,500)
(45 x $9,500)
$450,000
$475,000
$427,500
$25,000 U $47,500 F
(Sales price variance) (Sales volume variance)
Quick Study 21-21 (15 minutes)
Sales
Actual
Flexible Budget
Fixed Budget
Units
216,944
216,944
225,944
Price per
unit
$30,200
$30,000
$30,000
Total
dollars
(216,944 x $30,200)
(216,944 x $30,000)
(225,944 x $30,000)
$6,551,708,800
$6,508,320,000
$6,778,320,000
$43,388,800 F $270,000,000 U
(Sales price variance) (Sales volume variance)