8-39 (20-25 min.)
1. Monetary amounts are in thousands of dollars.
Actual
Results Flexible- Sales
at Actual Budget Flexible Activity Static
2. Jet fuel 79,200 13,200U* 66,000 11,000U* 55,000
*A 20% increase in passenger miles implies a 20% × $55,000 = $11,000 increase
8-40 (30-45 min.) The computations of variances are straightforward, although the
1. Nursing price variance
= Actual cost – (Actual hours × Standard price)
2. Supplies and VOH Efficiency variance
= (Actual hours – Std. hours allowed) × Variable overhead rate
3. The nursing price and usage variances are unfavorable. This may be due to
inefficient scheduling. More nurses are being used than are required according to
the flexible budget, and a higher proportion than normal are in the high wage rate
categories.
But this might be exactly what is expected when volume increases. The nurses
1. CNN LONDON MOTOR POOL
Monthly Budget Report
For March 20X1
Monthly
March Flexible Under
Cost per kilometer £ .1070 £ .1066 £(.0004)
Supporting Calculations for Monthly Budget Amounts:
Petrol: (140,000 actual km ÷ 8 km per liter) × £.44 per liter = £7,700
Oil, etc.: 140,000 km × £.02 per km = £2,800
Outside repairs: (£108 per auto × 26 autos) ÷ 12 months = £234
2. Outside automobile repairs are a function of the use of the automobile over its
lifetime. However, these repairs occur irregularly throughout the year and the life of the
8-42 (50-70 min.)
The following notation applies to requirements 1-3.
TC = Total cost
FI = Fixed costs of the Account Inquiry activity center
1. Activity Center Flexible-Budget Formula
Account Inquiry FI + VI × HR = $156,380 + $24.22(1) × HR
2. Flexible Budget — Account Inquiry Activity Center
Budget Cost Driver: Number of Labor Hrs. (HR)
Formula: 3,000 4,000 5,000
Variable Costs $24.22/HR $ 72,660 $ 96,880 $121,100
Fixed Costs $156,380 156,380 156,380 156,380
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345
Flexible Budget — Account Billing Activity Center
Budget Cost Driver: Number of Lines (LN)
Formula: 2,000,000 2,500,000 3,000,000
Variable Costs $0.063/LN $126,000 $157,500 $189,000
Fixed Costs $81,400 81,400 81,400 81,400
Total Flex. Bud. $207,400 $238,900 $270,400
Flexible Budget — Bill Verification Activity Center
Budget Cost Driver: Number of Accounts (AV)
Formula: 15,000 20,000 25,000
Variable Costs $0.54/AV $ 8,100 $10,800 $13,500
Fixed Costs $78,050 78,050 78,050 78,050
Total Flex. Bud. $86,150 $88,850 $91,550
3. TC = FI + FC + FB + FV + VI × HR + VC × LR + VB × LN + VV × AV
= $341,414 + $24.22 × HR+ $3.50 × LR + $.063 × LN + $0.54 × AV
4.
Flexible-
8-43 (25-30 min.)
Flexible Budget
Cost Incurred:
Based on
Actual Inputs
Actual Inputs
× Actual Prices
× Standard Prices
Direct
3,300 lbs. × $.97
3,300 lbs. × $1.00
materials
= $3,201
= $3,300
3,300 × ($.97 – $1.00) =
(3,300 – 3,000) × $1.00 =
Price variance $99F
Quantity variance $300U
Flexible-budget variance, $201U
Direct
5,500 hrs. × $7.70
5,500 hrs. × $8.00
labor
= $42,350
= $44,000
5,500 × ($7.70 – $8.00) =
(5,500-5,000) × $8.00 =
Price variance $1,650F
Quantity variance, $4,000U
Flexible-budget variance, $2,350U
Variable
5,500 hrs. × $.80
overhead
= $4,620
= $4,400
5,500 ×
($.84 – $.80)
(5,500-5,000) × $.80
= Spending variance,
$220U
= Efficiency variance, $400U
Flexible-budget variance, $620U
U = Unfavorable, F = Favorable
8-44 (30-35 min.) The format of the solution may seem awkward at first, but students
find that it provides perspective on the analysis of variances. CHF = Swiss Franc.
1.
Flexible Budget:
Standard Input Quantities
Cost Incurred:
Allowed for Outputs
Actual Inputs ×
Actual Input Quantities
Achieved ×
Actual Prices
× Standard Prices
Standard Prices
Direct Materials:
3,400 lbs. × 17.3CHF
3,400 lbs × 18CHF
2,900 lbs. × 18CHF
=58,820CHF
= 61,200CHF
= 52,200CHF
3,400 × .7CHF= Price
variance,
500 × 18CHF = Quantity
variance,
2,380CHF F
9,000CHF U
Flexible-budget variance, 6,620 CHF U
Direct Labor:
3,925 hrs. × 38.6CHF
3,925 hrs. × 38CHF
3,625 hrs. × 38CHF
= 151,505CHF
= 149,150CHF
= 137,750CHF
3,925 × .6CHF
300 × 38CHF
= Price variance,
Quantity variance,
2,355CHF U
11,400CHF U
Flexible-budget variance, 13,755 CHF U
Manufacturing Overhead:
Predicted
Flexible Budget:
Overhead Based
Standard Driver Use
on Actual
Allowed for Outputs
Actual Overhead
Driver Use
Achieved ×
Costs Incurred
× Standard Prices
Standard Prices
3,925 hrs. × 11CHF
3,625 hrs. × 11CHF
46,675CHF
= 43,175CHF
= 39,875CHF
Spending variance, 46,675
– 43,175 = 3,500CHF U
300 × 11CHF
= Efficiency variance,
3,300CHF U
Flexible-budget variance, 6,800CHF U
2. The flexible-budget allowance for any variable cost is the same as (is equal to)
the total standard quantity allowed for the good units produced times the
standard price.
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348
The budget allowance under standard costing for variable costs always depends
on output, the units produced. Therefore, the direct labor budget for 2,900 units
is, as shown above, 2,900 units × 1.25 hours × 38CHF = 137,750CHF. For
3,900 units, the budgetary allowance would be 3,900 units × 1.25 hours ×
38CHF = 185,250CHF. Note again that a budget can be established after the fact
— after the number of units produced is known.
8-45 (30-50 min.)
1. Department Performance Report
Direct Labor and Variable Overhead
Actual hours 5,800
Standard hours allowed, 2/3 hour × 8,100 units 5,400
2. Summary explanation:
Incurred:
Actual Hours
× Actual Price
Actual Hours ×
× Expected Price
Flexible Budget:
Standard
Hours Allowed
× Expected Price
Direct labor
5,800 hrs. ×
5,800 hrs. ×
5,400 hrs. ×
$5.10 = $29,580
$5.25 = $30,450
$5.25 = $28,350
5,800 × $.15 =
400 × $5.25 =
Price variance,
$870F
Quantity variance,
$2,100U
Flexible-budget variance, $1,230U
Actual Overhead
Cost Incurred
Actual Driver
Units (Hours) ×
× Expected Price
Flexible Budget:
Standard
Hours Allowed
× Expected Price
Variable
overhead
$16,200 plus flex
budget variance =
$16,200 + 795U =
$16,995
5,800 hrs. × $3.00 =
$17,400
5,400 hrs. × $3.00
= $16,200
Spending var. = flexible-
budget var. – Effic. var. =
$795 U – $1,200 U =
Efficiency variance =
$17,400 – $16,200
= $1,200 U
$405 F
Flexible-budget variance, $795U
3. The subdivision of the budget variance for variable overhead into spending and
efficiency variances appears to be similar to the split of the total direct labor
variance into a price variance and a quantity (or usage) variance. However, the
interpretation is quite different.
The efficiency variance for variable overhead measures the extra overhead costs
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352
8-46 (30-40 min.) This solution uses the formulas for variances given in the text.
1. Material price variance = ($5.50 – $5.30) × 27,000 = $5,400 F
Material quantity variance = $5.50 × (27,000 – (60 × 430)) = $6,600 U
$50.20U
2. The person in charge of purchasing saved $5,400 by purchasing direct materials
for $.20 per pound below standard cost. However, more of the material was used,
causing an unfavorable quantity variance of $6,600. If the purchase of low–
quality materials caused the excess usage, the net effect was an unfavorable
kayaks.
3. Suppose variable overhead varies with total labor hours. Then the overhead
variance can be broken into a variable-overhead efficiency variance and an
overhead spending variance (but the overhead spending variance cannot be
broken into fixed and variable components without more information):
1. Direct Materials:
Price variance = ($7.80 – $8.00) × 2,800 = $560F
Quantity variance = (2,800 – 2,700) × $8 = $800U
Total direct materials variance = $21,840 – (900 × $24)
2. KPM does not account separately for the price (rate) and quantity of labor.
Therefore, labor price and quantity variances cannot be computed. Many highly
8-48 (10-20 min.)
(a) (b) (c) (d)
Allowance Required Standard