Exercise 8-12 (45 minutes)
1. The planning budget based on 3 courses and 45 students appears
below:
Gourmand Cooking School
Planning Budget
For the Month Ended September 30
Budgeted courses (q1) ……………………………………….
3
Budgeted students (q2) ………………………………………
45
Revenue ($800q2) …………………………………………….
$36,000
Expenses:
Instructor wages ($3,080q1) ……………………………..
9,240
Classroom supplies ($260q2) …………………………….
11,700
Utilities ($870 + $130q1) ………………………………….
1,260
Campus rent ($4,200) ……………………………………..
4,200
Insurance ($1,890) …………………………………………
1,890
Administrative expenses ($3,270 + $15q1 +$4q2) ….
3,495
Total expense ………………………………………………….
31,785
Net operating income ………………………………………..
$ 4,215
2. The flexible budget based on 3 courses and 42 students appears below:
Gourmand Cooking School
Flexible Budget
For the Month Ended September 30
Actual courses (q1) ……………………………………………
3
Actual students (q2) …………………………………………..
42
Revenue ($800q2) …………………………………………….
$33,600
Expenses:
Instructor wages ($3,080q1) ……………………………..
9,240
Classroom supplies ($260q2) …………………………….
10,920
Utilities ($870 + $130q1) ………………………………….
1,260
Campus rent ($4,200) ……………………………………..
4,200
Insurance ($1,890) …………………………………………
1,890
Administrative expenses ($3,270 + $15q1 +$4q2) ….
3,483
Total expense ………………………………………………….
30,993
Net operating income ………………………………………..
$ 2,607
Exercise 8-12 (continued)
3. The revenue and spending variances for September appears below:
Gourmand Cooking School
Revenue and Spending Variances
For the Month Ended September 30
Actual
Results
Revenue
and
Spending
Variances
Courses (q1) …………………………....
3
Students (q2) …………………………...
42
Revenue ($800q2) ……………………..
$32,400
$1,200
U
Expenses:
Instructor wages ($3,080q1) ……..
9,080
160
F
Classroom supplies ($260q2) ……..
8,540
2,380
F
Utilities ($870 + $130q1) ………….
1,530
270
U
Campus rent ($4,200) ………………
4,200
0
Insurance ($1,890) ………………….
1,890
0
Administrative expenses
($3,270 + $15q1 +$4q2) ………..
3,790
307
U
Total expense …………………………..
29,030
1,963
F
Net operating income …………………
$ 3,370
$ 763
F
Exercise 8-13 (20 minutes)
1.
Actual Quantity
of Input, at
Actual Price
Actual Quantity
of Input, at
Standard Price
Standard Quantity
Allowed for Output,
at Standard Price
(AQ × AP)
(AQ × SP)
(SQ × SP)
20,000 pounds ×
$2.35 per pound
20,000 pounds ×
$2.50 per pound
18,400 pounds* ×
$2.50 per pound
= $47,000
= $50,000
= $46,000
Price Variance =
$3,000 F
Quantity Variance =
$4,000 U
Spending Variance = $1,000 U
*4,000 units × 4.6 pounds per unit = 18,400 pounds
Alternatively, the variances can be computed using the formulas:
Materials price variance = AQ (AP – SP)
Exercise 8-13 (continued)
2.
Actual Hours of
Input, at the
Actual Rate
Actual Hours of Input,
at the Standard Rate
Standard Hours
Allowed for Output, at
the Standard Rate
(AH × AR)
(AH × SR)
(SH × SR)
750 hours ×
$12.00 per hour
800 hours* ×
$12.00 per hour
$10,425
= $9,000
= $9,600
Rate Variance =
$1,425 U
Efficiency Variance =
$600 F
Spending Variance = $825 U
*4,000 units × 0.2 hours per unit = 800 hours
Alternatively, the variances can be computed using the formulas:
Exercise 8-14 (15 minutes)
Notice in the solution below that the materials price variance is
computed for the entire amount of materials purchased, whereas the
materials quantity variance is computed only for the amount of materials
used in production.
Actual Quantity of
Input, at Actual Price
Actual Quantity
of Input, at
Standard Price
Standard Quantity
Allowed for Output,
at Standard Price
(AQ × AP)
(AQ × SP)
(SQ × SP)
20,000 pounds ×
$2.35 per pound
20,000 pounds ×
$2.50 per pound
13,800 pounds* ×
$2.50 per pound
= $47,000
= $50,000
= $34,500
Price Variance =
$3,000 F
14,750 pounds × $2.50 per pound = $36,875
Quantity Variance =
$2,375 U
*3,000 units × 4.6 pounds per unit = 13,800 pounds
Alternatively, the variances can be computed using the formulas:
Materials price variance = AQ (AP – SP)
Exercise 8-15 (20 minutes)
Via Gelato
Revenue and Spending Variances
For the Month Ended June 30
Actual
Results
Flexible
Budget
Revenue and
Spending
Variances
Liters (q) ……………………………….
6,200
6,200
Revenue ($12.00q) ………………….
$71,540
$74,400
$2,860
U
Expenses:
Raw materials ($4.65q) ………….
29,230
28,830
400
U
Wages ($5,600 + $1.40q) ………
13,860
14,280
420
F
Utilities ($1,630 + $0.20q) ………
3,270
2,870
400
U
Rent ($2,600) ………………………
2,600
2,600
0
Insurance ($1,350) ……………….
1,350
1,350
0
Miscellaneous ($650 + $0.35q) ..
2,590
2,820
230
F
Total expense …………………………
52,900
52,750
150
U
Net operating income ……………….
$18,640
$21,650
$3,010
U
Exercise 8-16 (45 minutes)
1. The planning budget appears below. Note that the report does not
include revenue or net operating income because the production
department is a cost center that does not have any revenue.
Packaging Solutions Corporation
Production Department Planning Budget
For the Month Ended March 31
Budgeted labor-hours (q) ………………………..
8,000
Direct labor ($15.80q) …………………………….
$126,400
Indirect labor ($8,200 + $1.60q) ……………….
21,000
Utilities ($6,400 + $0.80q) ……………………….
12,800
Supplies ($1,100 + $0.40q) ……………………..
4,300
Equipment depreciation ($23,000 + $3.70q) ..
52,600
Factory rent ($8,400) ……………………………..
8,400
Property taxes ($2,100) …………………………..
2,100
Factory administration ($11,700 + $1.90q) ….
26,900
Total expense ……………………………………….
$254,500
2. The flexible budget appears below. Like the planning budget, this report
does not include revenue or net operating income because the
production department is a cost center that does not have any revenue.
Packaging Solutions Corporation
Production Department Flexible Budget
For the Month Ended March 31
Actual labor-hours (q) …………………………....
8,400
Direct labor ($15.80q) …………………………….
$132,720
Indirect labor ($8,200 + $1.60q) ……………….
21,640
Utilities ($6,400 + $0.80q) ……………………….
13,120
Supplies ($1,100 + $0.40q) ……………………..
4,460
Equipment depreciation ($23,000 + $3.70q) ..
54,080
Factory rent ($8,400) ……………………………..
8,400
Property taxes ($2,100) …………………………..
2,100
Factory administration ($11,700 + $1.90q) ….
27,660
Total expense ……………………………………….
$264,180
Exercise 8-16 (continued)
3. The spending variances appear below. This report does not include
revenue or net operating income because the production department is
a cost center that does not have any revenue.
Packaging Solutions Corporation
Spending Variances
For the Month Ended March 31
Actual
Results
Spending
Variances
Flexible
Budget
Labor-hours (q) ………………………….
8,400
8,400
Direct labor ($15.80q) ………………….
$134,730
$2,010
U
$132,720
Indirect labor ($8,200 + $1.60q) ……
19,860
1,780
F
21,640
Utilities ($6,400 + $0.80q)…………….
14,570
1,450
U
13,120
Supplies ($1,100 + $0.40q) …………..
4,980
520
U
4,460
Equipment depreciation
($23,000 + $3.70q) …………………..
54,080
0
54,080
Factory rent ($8,400) …………………..
8,700
300
U
8,400
Property taxes ($2,100) ………………..
2,100
0
2,100
Factory administration
($11,700 + $1.90q) …………………..
26,470
1,190
F
27,660
Total expense …………………………….
$265,490
$1,310
U
$264,180
Exercise 8-17 (30 minutes)
1. a. Notice in the solution below that the materials price variance is
computed on the entire amount of materials purchased, whereas the
materials quantity variance is computed only on the amount of
materials used in production.
Actual Quantity
of Input, at
Actual Price
Actual Quantity of
Input, at Standard Price
Standard Quantity
Allowed for Output, at
Standard Price
(AQ × AP)
(AQ × SP)
(SQ × SP)
25,000 microns ×
$0.48 per micron
25,000 microns ×
$0.50 per micron
18,000 microns* ×
$0.50 per micron
= $12,000
= $12,500
= $9,000
Price Variance =
$500 F
20,000 microns × $0.50 per micron
= $10,000
Quantity Variance =
$1,000 U
*3,000 toys × 6 microns per toy = 18,000 microns
Alternatively, the variances can be computed using the formulas:
Materials price variance = AQ (AP – SP)
Exercise 8-17 (continued)
b. Direct labor variances:
Actual Hours of
Input, at the
Actual Rate
Actual Hours of Input,
at the Standard Rate
Standard Hours Allowed
for Output, at the
Standard Rate
(AH × AR)
(AH × SR)
(SH × SR)
4,000 hours ×
$8.00 per hour
3,900 hours* ×
$8.00 per hour
$36,000
= $32,000
= $31,200
Rate Variance =
$4,000 U
Efficiency Variance =
$800 U
Spending Variance = $4,800 U
*3,000 toys × 1.3 hours per toy = 3,900 hours
Alternatively, the variances can be computed using the formulas:
Labor rate variance = AH (AR – SR)
4,000 hours ($9.00 per hour* – $8.00 per hour) = $4,000 U
*$36,000 ÷ 4,000 hours = $9.00 per hour
Labor efficiency variance = SR (AH – SH)
$8.00 per hour (4,000 hours – 3,900 hours) = $800 U
Exercise 8-17 (continued)
2. A variance usually has many possible explanations. In particular, we
should always keep in mind that the standards themselves may be
incorrect. Some of the other possible explanations for the variances
observed at Dawson Toys appear below:
Materials Price Variance
Since this variance is favorable, the actual price
Labor Rate Variance
Since this variance is unfavorable, the actual
average wage rate was higher than the standard wage rate. Some of
the possible explanations include an increase in wages that has not been
reflected in the standards, unanticipated overtime, and a shift toward
more highly paid workers.
Problem 8-18A (45 minutes)
1. a.
Actual Quantity of
Input, at Actual Price
Actual Quantity
of Input, at
Standard Price
Standard Quantity
Allowed for Output,
at Standard Price
(AQ × AP)
(AQ × SP)
(SQ × SP)
60,000 pounds ×
$1.95 per pound
60,000 pounds ×
$2.00 per pound
45,000 pounds* ×
$2.00 per pound
= $117,000
= $120,000
= $90,000
Price Variance =
$3,000 F
49,200 pounds × $2.00 per pound = $98,400
Quantity Variance =
$8,400 U
*15,000 pools × 3.0 pounds per pool = 45,000 pounds
Alternatively, the variances can be computed using the formulas:
Materials price variance = AQ (AP – SP)
60,000 pounds ($1.95 per pound – $2.00 per pound) = $3,000 F
Materials quantity variance = SP (AQ – SQ)
$2.00 per pound (49,200 pounds – 45,000 pounds) = $8,400 U
Problem 8-18A (continued)
b.
Actual Hours of
Input, at the
Actual Rate
Actual Hours of Input,
at the Standard Rate
Standard Hours
Allowed for Output,
at the Standard Rate
(AH × AR)
(AH × SR)
(SH × SR)
11,800 hours ×
$7.00 per hour
11,800 hours ×
$6.00 per hour
12,000 hours* ×
$6.00 per hour
= $82,600
= $70,800
= $72,000
Rate Variance =
$11,800 U
Efficiency Variance =
$1,200 F
Spending Variance = $10,600 U
*15,000 pools × 0.8 hours per pool = 12,000 hours
Alternatively, the variances can be computed using the formulas:
Labor rate variance = AH (AR – SR)
11,800 hours ($7.00 per hour – $6.00 per hour) = $11,800 U
Labor efficiency variance = SR (AH – SH)
$6.00 per hour (11,800 hours – 12,000 hours) = $1,200 F
Problem 8-18A (continued)
c.
Actual Hours of
Input, at the
Actual Rate
Actual Hours of
Input, at the
Standard Rate
Standard Hours
Allowed for Output,
at the Standard Rate
(AH × AR)
(AH × SR)
(SH × SR)
5,900 hours ×
$3.00 per hour
6,000 hours* ×
$3.00 per hour
$18,290
= $17,700
= $18,000
Rate Variance =
$590 U
Efficiency Variance =
$300 F
Spending Variance = $290 U
*15,000 pools × 0.4 hours per pool = 6,000 hours
Alternatively, the variances can be computed using the formulas:
Variable overhead rate variance = AH (AR – SR)
5,900 hours ($3.10 per hour* – $3.00 per hour) = $590 U
*$18,290 ÷ 5,900 hours = $3.10 per hour
Variable overhead efficiency variance = SR (AH – SH)
$3.00 per hour (5,900 hours – 6,000 hours) = $300 F
Problem 8-18A (continued)
2. Summary of variances:
Material price variance ……………………..
$ 3,000
F
Material quantity variance …………………
8,400
U
Labor rate variance ………………………….
11,800
U
Labor efficiency variance …………………..
1,200
F
Variable overhead rate variance ………….
590
U
Variable overhead efficiency variance …..
300
F
Net variance …………………………………..
$16,290
U
Budgeted cost of goods sold at $12 per pool ………
$180,000
Add the net unfavorable variance, as above ……….
16,290
Actual cost of goods sold ……………………………….
$196,290
Budgeted net operating income ……………………….
$36,000
Deduct the net unfavorable variance added to cost
of goods sold for the month …………………………
16,290
Net operating income ……………………………………
$19,710
3. The two most significant variances are the materials quantity variance
and the labor rate variance. Possible causes of the variances include:
Materials quantity variance:
Outdated standards, unskilled workers,
poorly adjusted machines,
carelessness, poorly trained workers,
inferior quality materials.
Labor rate variance:
Outdated standards, change in pay
scale, overtime pay.
Problem 8-19A (30 minutes)
1.
Milano Pizza
Revenue and Spending Variances
For the Month Ended November 30
Actual
Results
Revenue
and
Spending
Variances
Flexible
Budget
Pizzas (q1) …………………………..……
1,240
1,240
Deliveries (q2) …………………………...
174
174
Revenue ($13.50q1) ……………………
$17,420
$680
F
$16,740
Expenses:
Pizza ingredients ($3.80q1) …………
4,985
273
U
4,712
Kitchen staff ($5,220) ……………….
5,281
61
U
5,220
Utilities ($630 + $0.05q1) …………..
984
292
U
692
Delivery person ($3.50q2)…………..
609
0
609
Delivery vehicle ($540 + $1.50q2) ..
655
146
F
801
Equipment depreciation ($275) ……
275
0
275
Rent ($1,830) ………………………….
1,830
0
1,830
Miscellaneous ($820 + $0.15q1) ….
954
52
F
1,006
Total expense …………………………...
15,573
428
U
15,145
Net operating income ………………….
$ 1,847
$252
F
$ 1,595
Problem 8-19A (continued)
2. The revenue variance of $680 F indicates that the average price per
pizza was higher than expected. Perhaps customers ordered more
toppings on their pizzas than expected. The pizza ingredients variance
Problem 8-20A (45 minutes)
1. a.
Actual Quantity of Input,
at Actual Price
(AQ × AP)
Actual Quantity of
Input,
at Standard Price
(AQ × SP)
Standard Quantity
Allowed
for Actual Output,
at Standard Price
(SQ × SP)
21,600 feet** ×
$3.30 per foot
= $71,280
21,600 feet** ×
$3.00 per foot
= $64,800
21,600 feet* ×
$3.00 per foot
= $64,800
Materials price variance =
$6,480 U
Materials quantity
variance = $0
Spending variance = $6,480 U
*
12,000 units × 1.80 feet per unit = 21,600 feet
**
12,000 units × 1.80 feet per unit = 21,600 feet
Alternatively, the variances can be computed using the formulas:
Materials price variance = AQ (AP – SP)
= 21,600 feet ($3.30 per foot – $3.00 per foot)
= $6,480 U
Materials quantity variance = SP (AQ – SQ)
= $3.00 per foot (21,600 feet – 21,600 feet)
= $0
Problem 8-20A (continued)
1. b.
Actual Hours of Input,
at Actual Rate
(AH × AR)
Actual Hours of Input,
at Standard Rate
(AH × SR)
Standard Hours Allowed
for Actual Output,
at Standard Rate
(SH × SR)
11,040 hours** ×
$17.50 per hour
= $193,200
11,040 hours** ×
$18.00 per hour
= $198,720
10,800 hours* ×
$18.00 per hour
= $194,400
Labor rate variance
= $5,520 F
Labor efficiency
variance
= $4,320 U
Spending variance = $1,200 F
*
12,000 units × 0.90 hours per unit = 10,800 hours
**
12,000 units × 0.92 hours per unit = 11,040 hours
Alternatively, the variances can be computed using the formulas:
Labor rate variance = AH (AR – SR)
= 11,040 hours ($17.50 per hour – $18.00 per hour)
= $5,520 F
Labor efficiency variance = SR (AH – SH)
= $18.00 per hour (11,040 hours – 10,800 hours)
= $4,320 U
Problem 8-20A (continued)
1. c.
Actual Hours of Input,
at Actual Rate
(AH × AR)
Actual Hours of Input,
at Standard Rate
(AH × SR)
Standard Hours Allowed
for Actual Output,
at Standard Rate
(SH × SR)
11,040 hours** ×
$4.50 per hour
= $49,680
11,040 hours** ×
$5.00 per hour
= $55,200
10,800 hours* ×
$5.00 per hour
= $54,000
Variable overhead rate
variance = $5,520 F
Variable overhead
efficiency variance
= $1,200 U
Spending variance = $4,320 F
*
12,000 units × 0.90 hours per unit = 10,800 hours
**
12,000 units × 0.92 hours per unit = 11,040 hours
Alternatively, the variances can be computed using the formulas:
Variable overhead rate variance = AH (AR – SR)
= 11,040 hours ($4.50 per hour – $5.00 per hour)
= $5,520 F
Variable overhead efficiency variance = SR (AH – SH)
= $5.00 per hour (11,040 hours – 10,800 hours)
= $1,200 U
2.
Materials:
Price variance ($6,480 ÷ 12,000 units) ………..
$0.54 U
Quantity variance ($0 ÷ 12,000 units) …………
0.00
$0.54 U
Labor:
Rate variance ($5,520 ÷ 12,000 units) ………..
0.46 F
Efficiency variance ($4,320 ÷ 12,000 units) ….
0.36 U
0.10 F
Variable overhead:
Rate variance ($5,520 ÷ 12,000 units) ………..
0.46 F
Efficiency variance ($1,200 ÷ 12,000 units) ….
0.10 U
0.36 F
Excess of actual over standard cost per unit ……..
$0.08 U