1. Computing unit selling prices and unit costs of inputs:
Actual selling price = $2,502,500 ÷ 275,000
= $9.10
2., 3., and 4.
The actual and budgeted unit costs are:
Actual
Budgeted
Direct materials
Cream
Vanilla Extract
Cherry
$0.04 ($124,800 ÷ 3,120,000)
0.15 ($184,500 ÷ 1,230,000)
0.41 ($133,250 ÷ 325,000)
$0.03
0.12
0.45
Direct manufacturing labor
Preparing
Stirring
15.00 ($77,500 ÷ 310,000) × 60
18.00 ($154,500 ÷ 515,000) × 60
14.40
18.00
The actual output achieved is 275,000 pounds of Cherry Star.
Actual Costs
Incurred
(Actual Input
Quantity
× Actual Price)
(1)
Price
Variance
(2)=(1)–(3)
Efficiency
Variance
(4)=(3)–(5)
Flex. Budget
(Budgeted Input
Quantity Allowed
for Actual Output
× Budgeted Price)
(5)
Direct materials
Cream $ 124,800 $ 31,200 U $ 93,600a $ 5,400 F $ 99,000f
b $0.12 × 1,230,000 = $147,600 g $0.12 × 4 × 275,000 = $132,000
d $14.40/hr. × (310,000 min. ÷ 60 min./hr.) = $74,400 i $14.40 × ((275,000× 1.2) 60) = $79,200
7-38
Comments on the variances include
• Selling price variance. This may arise from a general increase in input prices (cream
and vanilla). The sales price increase could be an effort to maintain a target margin.
It could also arise from an overall industry increase in sales prices.
• Material price variance. The increase in the price per ounce of cream and vanilla
workers.
7-39
1. Actual cost of aluminum per sq ft = $283,023 ÷ 95,940 sq ft = $2.95 per sq ft
Actual aluminum per drum = 95,940 sq ft ÷ 4,920 drums= 19.50 sq ft
Actual cost of plastic per sq ft = $50,184 ÷ 33,456 sq ft = $1.50 per sq ft
Actual plastic per lid = 33,456 sq ft ÷ 4,920 drums= 6.80 sq ft
Actual direct labor rate = $118,572 ÷ 9,840 hours = $12.05 per hour
2. Actions employees may have taken include:
(a) Adding steps that are not necessary in working on a drum or lid.
7-40
(a) They may be paid on a piece-rate basis with incentives for production levels above
budget.
(b) They may want to create a relaxed work atmosphere, and a less demanding standard
3. If Jorgenson does nothing about standard costs, his behavior will violate the “Standards
of Ethical Conduct for Practitioners of Management Accounting.” In particular, he would
violate the
4. Jorgenson should discuss the situation with Fenton and point out that the standards are
lax and that this practice is unethical. If Fenton does not agree to change, Jorgenson
5. Main pros of using Benchmarking Clearing House information to compute variances are:
(a) Highlights to Stuckey in a direct way how it may or may not be cost-competitive.
(b) Provides a “reality check” to many internal positions about efficiency or
7-41
1. Variance Analysis for Sol Electronics for the second quarter of 2011
Second-
Quarter
2011
Actuals
Flexible
Budget
Variance
Flexible
Budget for
Second
Quarter
Sales
Volume
Variance
Static
Budget
(1)
(2) = (1) – (3)
(3)
(4) = (3) – (5)
(5)
Units
4,800
0
4,800
800
F
4,000
Selling price
$ 71.50
$ 70.00
$ 70.00
Sales
$343,200
$7,200
F
$336,000
$56,000
F
$280,000
Variable costs
Direct materials
57,600
2,592
F
60,192a
10,032
U
50,160
Direct manuf. labor
30,240
1,440
U
28,800b
4,800
U
24,000
Other variable costs
47,280
720
F
48,000 c
8,000
U
40,000
Total variable costs
135,120
1,872
F
136,992
22,832
U
114,160
Contribution margin
208,080
9,072
F
199,008
33,168
F
165,840
Fixed costs
68,400
400
U
68,000
0
68,000
Operating income
$139,680
$8,672
F
$131,008
$33,168
F
$ 97,840
a 4,800 units
2.2 lbs. per unit
$5.70 per lb. = $60,192
b 4,800 units
0.5 hrs. per unit
$12 per hr. = $28,800
c 4,800 units
$10 per unit = $48,000
Second-
Quarter
2011
Actuals
Price
Variance
Actual
Input
Quantity
Budgeted
Price
Efficiency
Variance
Flexible
Budget
for
Second
Quarter
Direct materials
$57,600
$2,880 U
$54,720a
$5,472 F
$60,192
Direct manuf. labor (DML)
30,240
4,320 U
25,920b
2,880 F
28,800
a 4,800 units
2 lbs. per unit
$5.70 per lb. = $54,720
b 4,800 units
0.45 DML hours per unit
$12 per DML hour = $25,920
7-42
2 The following details, revealed in the variance analysis, should be used to rebut the union if it
focuses on the favorable operating income variance:
• Most of the static budget operating income variance of $41,840F ($139,680 – $97,840)
comes from a favorable sales volume variance, which only arose because Sol sold more
3. Changing the standards may make them more realistic, making it easier to negotiate with
the union. But the union will resist any tightening of labor standards, and it may be too early (is