Problem 21-2B (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
Machinery repairs ……………………..
68,400
60,000
8,400
F
Utilities ……………………………………..
60,000
64,000
4,000
U
Packaging ………………………………...
96,000
90,000
6,000
F
Shipping …………………………………..
139,200
124,000
15,200
F
Total variable costs …………………..
2,115,600
2,098,000
17,600
F
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
Sales salary ……………………………...
160,000
162,000
2,000
U
Advertising expense ………………....
81,000
104,000
23,000
U
Salaries …………………………………....
241,000
232,000
9,000
F
Entertainment expense ……………..
90,000
100,000
10,000
U
Total fixed costs………………………..
1,112,000
1,157,000
45,000
U
Income from operations ……………...
$ 372,400
$ 393,000
$20,600
F
*F = Favorable variance; and U = Unfavorable variance
Problem 21-2B (Continued)
Part 2
(a) Analysis of sales variance
Total
Per unit
Budgeted sales ……………………………………………….…….
$3,600,000
$150.00
Actual sales …………………………..………………………..…
3,648,000
152.00
Sales variance (favorable)………………………………..…….
$ 48,000
$ 2.00
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
Actual materials used …………………………………………….
1,400,000
58.33*
Direct materials variance (favorable) ………………..…….
$ 40,000
$ 1.67
* (rounded)
Interpretation: The direct materials variance is favorable for two possible
reasons. (1) The quantity of materials used might have been less than the
quantity budgeted, and/or (2) the amount paid for the materials might have
been less than the budgeted purchase price.
Problem 21-3B (60 minutes)
Part 1
Variable costs (total divided by 15,000 units)
Per Unit
Amount
Indirect materials …………………………………
$ 1.50
Indirect labor………………………………… ……
6.00
Power………………………………………………
1.50
Repairs and maintenance………………………
3.00
Total variable costs………………………………
$12.00
Fixed costs (total)
Total
Amount
Depreciation—Building…………………………
$ 24,000
Depreciation—Machinery………………………
72,000
Taxes and insurance……………………………
18,000
Supervision………………………………………
66,000
Total fixed costs…………………………………
$180,000
Problem 21-3B (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
Indirect labor …………………..…
6.00
78,000
90,000
102,000
Power ……………………………..…
1.50
19,500
22,500
25,500
Repairs and maintenance ……
3.00
39,000
45,000
51,000
Total variable costs………….…
$12.00
156,000
180,000
204,000
Fixed overhead costs
Depreciation—Building ………
$ 24,000
24,000
24,000
24,000
Depreciation—Machinery ……
72,000
72,000
72,000
72,000
Taxes and insurance ………..…
18,000
18,000
18,000
18,000
Supervision …………………….…
66,000
66,000
66,000
66,000
Total fixed costs …………………
$180,000
180,000
180,000
180,000
Total overhead ………………….…
$336,000
$360,000
$384,000
Problem 21-3B (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.
Actual price:
$6.10/lb. (given)
Standard price:
$6.00/lb. (given)
Actual units at actual cost [69,000 lbs. @ $6.10] ……………………..
$420,900
Standard units at standard cost [67,500 lbs. @ $6.00] …………….
405,000
Direct material cost variance …………………………………………………
$ 15,900 U
Direct Materials Price and Quantity Variances
Actual Costs
AQ x AP
AQ x SP
Standard Costs
SQ x SP
69,000 x $6.10
69,000 x $6.00
67,500 x $6.00
lbs. per lb.
lbs. per lb.
lbs. per lb.
$420,900
$414,000
$405,000
$ 6,900 U
(Price variance)
$9,000 U
(Quantity variance)
$15,900 U
(Total materials variance)
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
Quantity variance
=
(AQ – SQ) x SP
=
(69,000 – 67,500) lb. x $6.00 per lb.
=
1,500 lb. x $6.00 per lb.
=
$ 9,000 U
Price variance …………….…..
$ 6,900 U
Quantity variance ……….…..
9,000 U
Total variance …………….…..
$15,900 U
Problem 21-3B (Continued)
Part 4 Direct labor variances
Preliminary computations
Actual hours used:
22,800 hours (given)
Standard hours:
15,000 units x 1.5 hrs./unit = 22,500 hours
Actual rate:
$12.30/hr. (given)
Standard rate:
$12.00/hr. (given)
Actual units at actual cost [22,800 hrs. @ $12.30] …………………………..
$280,440
Standard units at standard cost [22,500 hrs. @ $12.00] …………………………..
270,000
Direct labor cost variance ……………………………………………………….
$ 10,440 U
Direct Labor Rate and Efficiency Variances
Actual Costs
AH x AR
AH x SR
Standard Costs
SH x SR
22,800 x $12.30
22,800 x $12.00
22,500 x $12.00
hours per hr.
hours per hr.
hours per hr.
$280,440
$273,600
$270,000
$6,840 U
(Rate variance)
$3,600 U
(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
Efficiency variance
=
(AH – SH) x SR
=
(22,800 – 22,500) hours x $12.00 per hour
=
300 hours x $12.00 per hour
=
$ 3,600 U
Rate variance ……………..…..
$ 6,840 U
Efficiency variance ……..…..
3,600 U
Total …………………………..
$10,440 U
Problem 21-3B (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
Indirect labor …………………………..…………
90,000
82,260
7,740
F
Power …………………………………………..……
22,500
23,100
600
U
Repairs and maintenance ……………..……
45,000
46,800
1,800
U
Total variable costs …………………………..
180,000
173,760
6,240
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
Supervision ………………………………….……
66,000
66,000
0
Total fixed costs…………………………………
180,000
181,500
1,500
U
Total overhead costs …………………………..
$360,000
$355,260
$4,740
F
*F = Favorable variance; and U = Unfavorable variance
Problem 21-4B (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 21-4B (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
Problem 21-5BA (15 minutes)
(a) Variable Overhead Spending and Efficiency Variances
Actual Overhead
AH x AVR
AH x SVR
Applied Overhead
SH x SVR
250,000 x $5
252,000 x $5
$1,200,000
$1,250,000
$1,260,000