8-48
SOLUTION EXHIBIT 8-39
Actual Costs
Incurred:
Actual Input
Quantity
Actual Input Quantity
Budgeted Price
Flexible Budget:
Budgeted Input
Quantity Allowed
for Actual Output
× Actual Rate
Purchases
Usage
× Budgeted Price
Direct
Materials
(25,000 $5.20)
$130,000
(25,000 $5.00)
$125,000
(23,100 $5.00)
$115,500
(23,400 $5.00)
$117,000
$5,000 U $1,500 F
a. Price variance b. Efficiency variance
Direct
Manuf.
Labor
(40,100 $14.60)
$585,460
(39,000 $15.00)
$585,000
$16,040 F $16,500 U
c. Price variance d. Efficiency variance
Actual
Costs
Incurred
Actual Input
Quantity
Budgeted Rate
Flexible Budget:
Budgeted Input
Quantity Allowed
for Actual Output
Budgeted Rate
Allocated:
(Budgeted Input
Quantity Allowed
for Actual Output
Budgeted Rate)
Variable
Manuf.
Overhead
(not given)
(40,100 $6.00)
$240,600
(39,000 $6.00)
$234,000
(39,000 $6.00)
$234,000
$6,600 U
Efficiency variance Never a variance
Fixed
Manuf.
Overhead
(not given)
$320,000
$320,000
(39,000 $8.00)
$312,000
$8,000 U*
Never a variance Prodn. volume variance
Total
Manuf.
Overhead
(given)
$600,000
($240,600 + $320,000)
$560,600
($234,000 + $320,000)
$554,000
($234,000 + $312,000)
$546,000
$39,400 U $6,600 U $8,000 U
e. Spending variance f. Efficiency variance g. Prodn. volume variance
*Denominator level in hours 40,000
Production volume in standard hours allowed 39,000
Production-volume variance 1,000 hours $8.00 = $8,000 U
8-49
1. Variance Analysis of Inspection Hours for Supreme Canine Products for May
Actual Pounds Standard Pounds Inspected
2. Variance Analysis of Pounds Failing Inspection for Supreme Canine Products for May
Actual pounds Standard Pounds Inspected
Actual Pounds Inspected Budgeted for Actual Output Budgeted
8-50
1. Variable overhead variances
Actual Actual Hours Standard Hours
Variable Overhead Budgeted Rate Standard Rate
(440,000 × $1.60) (900,000 × .5 × $1.60)
2.
Actual
Flexible-
Budget
Flexible
Sales-
Volume
Static
results
Variances
Budget
Variances
Budget
(1)
(2) = (1) – (3)
(3)
(4) = (3)-(5)
(5)
Units sold
900,000
900,000
800,000
Unit price
$ 6
$ 5
$ 5
Revenues
$5,400,000
$900,000 F
$4,500,000
$500,000 F
$4,000,000
Variable costs
Direct materials
1,080,000
0
1,080,000
120,000 U
960,000
Direct labor
1,620,000
0
1,620,000
180,000 U
1,440,000
Variable overhead
699,600
20,400 F
720,000
80,000 U
640,000
Total variable costs
3,399,600
20,400 F
3,420,000
380,000 U
3,040,000
Contribution margin
2,000,400
920,400 F
1,080,000
120,000 F
960,000
Fixed manufacturing
costs
501,900
31,900 U
470,000
0
470,000
Operating income
$1,498,500
$888,500 F
$ 610,000
$120,000 F
$ 490,000
8-51
3. Budgeted cost per shopping bag:
Direct materials per bag (given) $1.20
Direct labor per bag (given) 1.80
4. Budgeted operating income (from #3) $ 551,250
Add: favorable volume variance (from #1) 58,750
5. Operating income volume variance:
Budgeted operating income for actual output – static budget operating income
8-52
Collaborative Learning Problem
1. a. Nevada plant:
Expected output in units 4,000,000
Direct labor hours per unit .25
Total budgeted labor hours 1,000,000
2. Variable overhead variances:
Nevada plant:
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Ohio plant:
Actual Actual Hours Budgeted Input Allowed for
3. Fixed overhead variances
a. Excluding the allocated common costs
Nevada plant:
Actual Static Budget Budgeted Input Allowed for
8-54
b. Including allocated common costs
Nevada plant:
Actual Static Budget Budgeted Input Allowed for
Fixed Overhead Fixed Overhead Actual Output Budgeted Rate
4. Jack Jones’s attempt did not fully work. Even though he tried to allocate a significantly
larger amount of common cost to the Nevada plant than to the Ohio plant, the cost becomes
part of the fixed overhead rate and thus will only cause a large unfavorable spending
5. Common fixed costs should not be allocated to units that are being evaluated for
6. Jack Jones’s behavior is not ethical. He attempted to make his friend better off by