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Problem 21-6BA (45 minutes)
Part 1
June 30*
Work in Process Inventory ................................
130,000
Direct Materials Quantity Variance ................................
5,000
Direct Materials Price Variance ................................
1,500
Raw Materials Inventory ................................
123,500
To record materials costs, including
the favorable quantity and
favorable price variances.
June 30
Work in Process Inventory ................................
67,500
Direct Labor Rate Variance ................................
500
Direct Labor Efficiency Variance ................................
3,000
Factory Payroll Payable ................................
65,000
To record direct labor costs, including
the favorable efficiency variance and
unfavorable rate variance.
June 30
Work in Process Inventory ................................
230,000
Controllable Variance ..............................................................
8,000
Volume Variance ................................................................
12,000
Factory Overhead ...........................................................
250,000
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................................
125,000
Direct Materials Price Variance................................
1,500
Accounts Payable ................................................................
123,500
(2) Issuance of materials into production
Work in Process Inventory ................................
130,000
Direct Materials Quantity Variance ................................
5,000
Raw Materials Inventory ................................
125,000
Problem 21-6BA (Concluded)
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.
manager can seek explanations of the less significant direct labor rate
variance from the personnel department.
* The unfavorable volume variance indicates that the company produced fewer items
than expected. Managers would need to determine whether this was because of
declining sales, idle time, breakdowns, or other reasons.
SERIAL PROBLEM — SP 21
Serial Problem, Business Solutions (30 minutes)
Business Solutions
Flexible Budget Performance Report
For Quarter Ended June 30
Flexible
Actual
Budget
Results
Variances
Desk sales (150 units) ...............................
$187,500
$186,000
$1,500
U
Chair sales (80 units) ................................
Variable expenses................................
40,000
132,500
41,200
132,880
1,200
380
F
U
Contribution margin ................................
95,000
94,320
680
U
Fixed expenses ..........................................
30,000
31,000
1,000
U
Income from operations ............................
$ 65,000
$ 63,320
$1,680
U
Supporting computations
Total budgeted desk sales ........................................................
$180,000
Total units budgeted ................................................................
144
Budgeted selling price ..............................................................
$1,250 per unit
Flexible budget units ................................................................
150
Flexible budget sales ................................................................
$187,500
Total budgeted chair sales ........................................................
$ 36,000
Total units budgeted ................................................................
72
Budgeted selling price ..............................................................
$500 per unit
Flexible budget units ................................................................
80
Flexible budget sales ................................................................
$ 40,000
Total budgeted variable costs for desks ................................
$108,000
Total units budgeted ................................................................
144
Budgeted variable expenses per desk ................................
$750
Flexible budget units ................................................................
150
Flexible budget variable expenses for desks ...........................
$112,500
Serial Problem, Business Solutions (concluded)
Total budgeted variable costs for chairs ................................
$18,000
Total units budgeted ................................................................
72
Budgeted variable expenses per chair ................................
$250
Flexible budget units ................................................................
80
Flexible budget variable expenses for chairs ..........................
$20,000
Total budgeted variable expenses* ................................
$132,500
*($112,500 + $20,000), from calculation above
Total actual expenses ...............................................................
$163,880
Actual fixed expenses ...............................................................
31,000
Actual variable expenses ..........................................................
$132,880
©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Solutions Manual, Chapter 21
1277
Reporting in Action — BTN 21-1
1. For foreign subsidiaries that do not use the U.S. dollar as their functional
sheet.
2. a. As reported in its footnote, the assets and liabilities of foreign
subsidiaries (e.g. cash) are translated at exchange rates in effect at the
1. Apple and Google sales figures for the most recent 3 years—data
available from Appendix A—are shown below ($ millions):
Two Years
Prior
One Year
Prior
Current
Year
One
Year
Ahead
Two
Years
Ahead
Apple
$108,249
$156,508
$170,910
_______
_______
45% incr.
9% incr.
Google
$37,905
$50,175
$59,825
_______
_______
32% incr.
19% incr.
2. Predictions will vary among students. Generally, predictions should
reflect both the trend in the company’s sales data and current industry
and economy-wide conditions. Both Apple’s and Google’s sales
increased in each of the past two years and the rate of increase was lower
in the most recent year. Students may project that Apple’s and Google’s
Ethics Challenge — BTN 21-3
A typical answer might include four individuals selected from the following
specialty areas (answers will vary among students):
Specialty
Information Input and Explanation
Engineer ................................
Scientific support for quantity standard.
Production manager ..............
Actual amount or quantity used in production.
Supplier ................................
Identify reasonable price of inputs.
Purchasing manager .............
Identify reasonable price of inputs.
Market research analyst ........
Market research to support quantity and price
standards.
The ethical challenge for a manager responsible for setting and/or revising
standards is to select the right individuals for the team and to purposely avoid
biases in establishing the standards.
Communicating in Practice — BTN 21-4
MEMORANDUM
TO:
FROM:
DATE:
SUBJECT:
Variance
Cost of Goods Sold
Gross Margin
Part 1.
Favorable
Decrease
Increase
Part 2.
Unfavorable
Increase
Decrease
Part 3. A favorable (unfavorable) variance means that actual costs are
lower (higher) than the budgeted or expected amounts. It also
helps to point out the link between a favorable (unfavorable)
variance and an increase (decrease) in gross margin and net
income.
©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Solutions Manual, Chapter 21
1279
Taking It to the Net — BTN 21-5
1. Benchmarking is a method whereby organizations try to look to other
organizations to identify “best practices” so as to improve and attain
2. Given that a benchmark can be considered as a standard, companies
should analyze the costs associated with achieving the benchmark figure.
Firms can then compare their current cost levels with the benchmark cost
so as to identify the potential for cost savings.
Teamwork in Action — BTN 21-6
Entrepreneurial Decision — BTN 21-7
To: Chris Sugai, President
Niner Bikes
Re: Management Accounting Quote Interpretations
Quote 1: “Variances are not explanations”
The author of this quote is emphasizing that variances are only a starting
point in controlling production operations. Management must look beyond
the variances to understand why they occurred.
Quote 2: “Management’s goal is not to minimize variances.”
The author of this quote understands that the real objective of management is
to maximize the value of the firm for the stakeholders. For example, it might
not be wise to focus solely on minimizing the direct material price variance if
such a focus would impair product quality. Usually, it is not advisable to trade
off product quality in order to reduce costs.
Hitting The Road — BTN 21-8
1. A typical cheese pizza has three main raw materials: dough, sauce, and
cheese.
2. Observe that the national chain probably follows specific measurement
3. These observations reflect an important issue for pizza businesses and for
smaller, local businesses in particular. Excess raw materials applied to
1. Samsung’s sales figures for the most recent 2 years — data available from
