EXERCISES
Exercise 21-1 (20 minutes)
Item
Cost
a. Bike frames
Variable
b. Screws for assembly
Variable
c. Repair expense for tools (If these costs are only remotely related
to volume, they may be better classified as fixed)
Variable
d. Direct labor (If employees receive monthly salaries, this cost would
be fixed)
Variable
e. Bike tires
Variable
f. Gas used for heating**
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
the volume level)
Fixed
j. Depreciation on tools (If the company uses the units–of–
production method, the depreciation would be variable)
Fixed
k. Management salaries
Fixed
* Incoming shipping expenses are variable with respect to the number (volume) of
incoming shipments, not production.
** Gas used for heating is often a mixed cost rather than strictly variable.
Exercise 21-2 (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
40.00
240,000
280,000
320,000
70.00
420,000
490,000
560,000
25.00
150,000
175,000
200,000
20.00
120,000
140,000
160,000
22.00
132,000
154,000
176,000
177.00
1,062,000
1,239,000
1,416,000
$223.00
1,338,000
1,561,000
1,784,000
$ 65,000
65,000
65,000
65,000
125,000
125,000
125,000
125,000
85,000
85,000
85,000
85,000
35,000
35,000
35,000
35,000
20,000
20,000
20,000
20,000
36,000
36,000
36,000
36,000
$366,000
366,000
366,000
366,000
$ 972,000
$1,195,000
$1,418,000
* Equals total variable costs divided by the volume of 7,000 units.
Exercise 21-3 (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
Contribution margin ……………………
162,000
189,000
27,000
F
Fixed expenses …………………………..
21,000
27,000
6,000
U
Income from operations ………………
$141,000
$162,000
$21,000
F
Supporting computations
Total fixed budget sales …………………………..
$ 420,000
Total fixed budget units…………………………..
÷ 8,400
Budgeted selling price…………………………….…………………..
$50 per unit
Flexible budget units …………………………………………………..
× 10,800
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
Total actual expenses …………………………..……………………..
$ 378,000
Less actual fixed expenses ……………………..……
27,000
Total actual variable expenses ………………..…………
$ 351,000
Exercise 21-4 (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
Contribution margin ……………………
252,000
254,000
2,000
F
Fixed expenses …………………………..
160,000
158,000
2,000
F
Income from operations ………………
$ 92,000
$ 96,000
$ 4,000
F
Supporting computations
Total fixed budget sales …………………………..
$ 750,000
Total units budgeted …………………………………………..
÷ 7,500
Budgeted selling price…………………………..
$100 per unit
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
Flexible budget units …………………………..
× 7,200
Flexible budget variable expenses ……….……………..
$ 468,000
Total actual expenses …………………………..
$ 641,000
Less actual fixed expenses ………………….……….
158,000
Total actual variable expenses …………….…………….
$ 483,000
Exercise 21-5 (10 minutes)
Exercise 21-6 (5 minutes)
Following management by exception, the company should focus on those
Exercise 21-7 (15 minutes)
(1) c (2) a (3) b (4) i (5) e
(6) h (7) d (8) f (9) j (10) g
Exercise 21-8 (10 minutes)
(1) The standard cost for one unit is computed as:
Direct materials (6 lbs. @$8 per lb.) ………………………………………...
$ 48
Direct labor (2 hours @$16 per hour) ………………………………………..
32
Overhead (2 direct labor hours @$12 per hour)………………………...
24
Total ………………………………………………………………………………………..
$104
Exercise 21–8 (continued)
(2) Total cost variance
Actual costs incurred during the month:
Direct materials (48,500 x $8.10) ……………………………………………..………..
$392,850
Direct labor (15,700 x $16.50) …………………………..…………………….…….
Overhead ……………………………………………………………………………….…..
259,050
198,000
Total actual manufacturing costs …………………………..……………….…………
$849,900
Direct materials (8,000 x 6 lbs. x $8 per lb.) ……………………………..…………
$384,000
Direct labor (8,000 x 2 hrs. x $16.00 per hr.) ………………………………………
Overhead (8,000 x 2 direct labor hours x $12 per hr.) …………………………
256,000
192,000
Total standard manufacturing costs ……………………………………….…………
$832,000
Total actual manufacturing costs …………………………………………..…………
Total standard manufacturing costs ……………………………………….…………
$849,900
832,000
Total cost variance (unfavorable) …………………………..…………………………
$ 17,900
Exercise 21-9 (15 minutes)
Direct materials price variance:
Actual cost of direct materials used (48,500 x $8.10) ……………….…………
$392,850
Actual quantity used x Standard price (48,500 x $8.00) ………………………
388,000
Direct materials price variance (unfavorable) …………………………..
$ 4,850
Direct materials quantity variance:
Actual quantity used x Standard price (48,500 x $8.00) ………………………
$388,000
Standard quantity x Standard price (48,000 x $8.00) ………………..…………
384,000
Direct materials quantity variance (unfavorable) ……………………..……
$ 4,000
*8,000 units x 6 pounds per unit = 48,000 pounds
Exercise 21–10 (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
Direct labor efficiency variance:
Actual hours x Standard rate per hour (15,700 x $16.00) ………….…………
$251,200
Standard hours x Standard rate per hour (16,000** x $16.00) ………………
256,000
Direct labor efficiency variance (favorable) …………………………..……………
$ 4,800
**8,000 units x 2 hours per unit = 16,000 hours
Exercise 21-11 (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:
Actual quantity used x Standard price (138,000 x $4.00) ………….…………
$552,000
Standard quantity x Standard price (135,000* x $4.00) ……………..…………
540,000
Direct materials quantity variance (unfavorable) ……………………..……
$ 12,000
*9,000 units x 15 pounds per unit = 135,000 pounds
Exercise 21–11 (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:
Actual hours x Standard rate per hour (31,000 x $15.00) ………….…………
$465,000
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 21-12 (25 minutes)
Part 1 Direct materials price variance:
Actual cost of direct materials used (92,000 x $2.95) ……………….…………
$271,400
Actual quantity used x Standard price (92,000 x $3.00) ………………………
276,000
Direct materials price variance (favorable) …………………………………………
$ 4,600
Direct materials quantity variance:
Actual quantity used x Standard price (92,000 x $3.00) ………………………
$276,000
Standard quantity x Standard price (90,000* x $3.00) ……………….…………
270,000
Direct materials quantity variance (unfavorable) ……………………..……
$ 6,000
*9,000 units x 10 pounds per unit = 90,000 pounds
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:
Actual hours x Standard rate per hour (37,600 x $6.00) ………………………
$225,600
Standard hours x Standard rate per hour (36,000** x $6.00) ……..…………
216,000
Direct labor efficiency variance (unfavorable) …………………………..
$ 9,600
**9,000 units x 4 hours per unit = 36,000 hours
Exercise 21–13 (30 minutes)
1. Preliminary computations
Actual quantity: 22,000 bd. ft. (given)
Standard quantity: 3,000 units x 8 bd. ft./unit = 24,000 bd. ft.
Actual price: $266,200/22,000 bd. ft. = $12.10/bd. ft.
Standard price: $12.00/bd. ft. (given)
$2,200 U
(Price variance)
$24,000 F
(Quantity variance)
$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
Quantity variance
= (AQ – SQ) x SP
= (22,000 – 24,000) board feet x $12.00/board foot
= $24,000 F
Price variance …………….…..
$ 2,200 U
Quantity variance ……….…..
24,000 F
Total variance …………….…..
$21,800 F
2. The unfavorable price variance means the actual price paid is more than
the budgeted price. The favorable quantity variance means the actual
Exercise 21–14A (25 minutes)
1.
Work in Process Inventory ………………………………………………
288,000
Direct Materials Price Variance* ………………………………………
2,200
Direct Materials Quantity Variance …………………..………
24,000
Raw Materials Inventory ………………………………….………
266,200
To record materials price and quantity variances.
* This price variance can alternatively be computed and recorded when the direct materials are
purchased.
2.
Direct Materials Quantity Variance …………………………..
24,000
Direct Materials Price Variance ………………………..…
2,200
Cost of Goods Sold …………………………..…………….………
21,800
To close the materials price and quantity
variances to cost of goods sold.
3. The $24,000 materials quantity variance should be investigated because of