Exercise 21-22 (25 minutes)
Preliminary calculations:
Variable overhead rate per DL hour = $32,000/32,000 = $1 per hour
Fixed overhead rate per DL hour = $48,000/32,000 = $1.50 per hour
Exercise 21–22 (continued)
Part 3
BLAZE CORP.
Overhead Variance Report
For Month Ended March 31
Volume Variance
Expected production level ……………………………………
80% of capacity
Production level achieved ……………………………………
90% of capacity
Volume variance …………………………………………….……
$6,000 (favorable)
Flexible
Actual
Controllable Variance
Budget
Results
Variances*
Variable overhead costs
Indirect materials ………………………
$11,250
$10,000
$1,250
F
Indirect labor ……………………….….
18,000
16,000
2,000
F
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
Depreciation—Machinery ……..……
20,000
19,200
800
F
Taxes and insurance …………………
2,400
3,000
600
U
Supervisory salaries …………….……
13,600
14,000
400
U
Total fixed costs…………………..……
48,000
48,200
200
U
Total overhead costs ……………..……
$84,000
$81,700
$2,300
F
* F = Favorable variance; and U = Unfavorable variance.
Exercise 21–23 (25 minutes)
1. Sales price and sales volume variances
Sales Actual Sales
Flexible Budget
Fixed Budget
Units 350
350
365
Price/unit $1,200
$1,100
$1,100
(350 x $1,200)
(350 x $1,100)
(365 x $1,100)
Total $420,000
$385,000
$401,500
$35,000 F
(Sales price variance)
$16,500 U
(Sales volume variance)
2. Interpretation
The $35,000 favorable sales price variance implies it sold computers for a
increase.
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Financial and Managerial Accounting, 6th Edition
1246
PROBLEM SET A
Problem 21-1A (60 minutes)
Part 1
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
Utilities ($45,000 variable) ……………………………………………………...
3.00
Packaging …………………………..………………………………………………...
5.00
Shipping ………………………………………………………………………………..
7.00
Total variable costs………………………………………………………………..
$ 99.00
Fixed costs
Depreciation—Plant equipment …………………………..………………….
$ 300,000
Utilities ($195,000 – $45,000 variable) ……………………………………...
150,000
Plant management salaries …………………………………………………….
200,000
Sales salary …………………………………………………………………………..
250,000
Advertising expense ……………………………………………………………...
125,000
Salaries ………………………………………………………………………………...
241,000
Entertainment expense…………………………………………………………..
90,000
Total fixed costs …………………………………………………………………….
$1,356,000
Problem 21-1A (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
Direct labor ……………………
15.00
210,000
240,000
Machinery repairs ………….
4.00
56,000
64,000
Utilities ………………………….
3.00
42,000
48,000
Packaging ……………………..
5.00
70,000
80,000
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
Utilities ………………………….
150,000
150,000
150,000
Plant mgmt. salaries ………
200,000
200,000
200,000
Sales salary. ………………….
250,000
250,000
250,000
Advertising expense ………
125,000
125,000
125,000
Salaries …………………………
241,000
241,000
241,000
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
Problem 21-1A (Continued)
Part 3
Operating income increase for a 15,000 to 18,000 unit sales increase
Possible sales (units) ………………………………………………………
18,000
Units
Contribution margin per unit ……………………………………………
x $101
Total contribution margin …………………………………………..……
$1,818,000
Less: Fixed costs ……………………………………………………....
(1,356,000)
Potential operating income ………………………………………..……
$ 462,000
vs. Budgeted income for 2015 …………………………………………
159,000
Increase …………………………………………………………………….……
$ 303,000*
*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
Total contribution margin …………………………………………..……
$1,212,000
Less: Fixed costs ……………………………………………………....
(1,356,000)
Potential operating loss ……………………………………………..……
$ (144,000)
Problem 21-2A (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
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.
Problem 21-2A (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
* (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
Actual materials used ……………………………………..……..
1,185,000
65.83
Direct materials variance (unfavorable) …………..……..
$ 15,000
$ 0.83
Interpretation: The direct materials variance is unfavorable for two
possible reasons. (1) The quantity of materials used may have been more
than the quantity budgeted, and/or (2) the amount paid for the materials
might have been more than the budgeted purchase price.
Problem 21-3A (60 minutes)
Part 1
Variable or Fixed Classification
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 21-3A (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)
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)
$14,100 U
(Total materials variance)
Alternate solution format
Price variance
=
AQ x (AP – SP)
=
91,000 lb. x ($5.10 – $5.00) per lb.
=
91,000 lb. x ($0.10) per lb.
=
$9,100 U
Quantity variance
=
(AQ – SQ) x SP
=
(91,000 – 90,000) lb. x $5.00 per lb.
=
1,000 lb. x $5.00 per lb.
=
$5,000 U
Price variance …………….…..
$ 9,100 U
Quantity variance ………..…..
5,000 U
Total variance ……………..…..
$14,100 U