Chapter 10: Using Budgets for Planning and Coordination
– 413 –
Ending cash balance
$112,000
10–60 (a) With 2,000,000 medical claims Shadyside Insurance Company should employ
13.33 = ((2,000,000/150,000) 1) supervisors, 26.67 = ((2,000,000/150,000)
2) senior clerks, and 80 = ((2,000,000/150,000) 6) junior clerks. Assuming that
the organization hires full–time people, clerical costs are a step variable cost
The actual cost to this group was $4,354,000 = (14 $42,000) + (30
(b) The issue is why the clerical group is employing more people than it
should be for the workload it faces. There are many possible reasons for
this result, including training inefficiencies, continued growth requiring
Atkinson, Solutions Manual t/a Management Accounting, 6E
– 414 –
10–61 (a) Let p be the unit sales price to earn a budgeted profit (before income
taxes) of $200,000.
Sales (260,000 units)
Cost of goods sold:
Direct materials
300,000 × 130% × 120%
468,000
Direct labor
200,000 × 130% × 115%
299,000
Variable manufacturing support
60,000 × 130% × 110%
85,800
Fixed manufacturing support
40,000 × 105%
42,000
Gross margin
Selling expenses: 150,000 108%
162,000
Administrative expenses
100,000 × 106%
106,000
Profit (before income taxes)
Therefore, 260,000p – 1,162,800 200,000 or p $5.24.
Chapter 10: Using Budgets for Planning and Coordination
– 415 –
Sales (x units)
5.00x
Cost of goods sold:
Direct materials
%120
000,200
000,300 x
1.80x
Direct labor
%115
000,200
000,200 x
115.x
Variable manufacturing support
%110
000,200
000,60 x
0.33x
Fixed manufacturing support
40,000 × 105%
42 000,
328 42 000. ,x
Gross margin
172 42 000. ,x
Selling expenses*
150,000 + [(150,000 8%)
200,000
60,000
x
]
0.2x +
110,000
Administrative expenses: 100,000 × 106%
106 000,
0 2 216 000. ,x
Profit (before income taxes)
152 258 000. ,x
*The original information states that selling expenses will increase 8% solely from
increased volume of 200,000 × 30% = 60,000 units. That is, costs will increase by
Atkinson, Solutions Manual t/a Management Accounting, 6E
(c)
Sales: 220,000 units $5.24
$1,152,800
Cost of goods sold:
Direct materials: 300,000 × 110% × 120%
$396,000
Direct labor: 200,000 × 110% × 115%
253,000
Variable manufacturing support
(60,000 × 110% × 110%)
72,600
Fixed manufacturing support
42,000
763,600
Gross margin
389,200
Selling expenses
150,000 + [(150,000 8%)
20,000
60,000
]
$154,000
Administrative expenses: 100,000 × 106%
106,000
260,000
Profit (before income taxes)
$129,200
10–62 (a) Last month’s profit
$0. , , $0. , , $60,$90,40 1000 000 25 1000 000 000 000
Current month’s target profit
$90, . $135,000 15 000
Chapter 10: Using Budgets for Planning and Coordination
– 417 –
10–63
(a)
Old Machine
New Machine
Selling price per unit
$18
$20
Variable cost per unit
$14
$14
Contribution margin
4
6
Monthly fixed costs
$120,000
$250,000
Breakeven points (in units)
30,000
41,667
costs.
SP QFC V Q SP Q
Q Q Q
Q
10%
000 010
000
20 14 262,500
$20 $250,$14 .$20
$250,
$
(c)
QSP VC FC QSP VC FC
Q Q
Q
1 1 1 2 2 2
000 000
250 000 120 000
6 4 65 000
$4 $120,$6 $250,
$ , ,
$,
lower breakeven point.
(e)
QSP VC FC
QSP
QSP VC FC
QSP
Q
Q
Q
Q
Q Q
Q
1 1 1
1
2 2 2
2
4120 000
18
6250 000
20
20 4120 000 18 6250 000
28 2,100 000
, ,
, ,
,
Q75,000 units
– 418 –
10–64
(a)
Deluxe rackets
Without
With
Sales price per racket
$40.00
$36.00
Variable costs:
Manufacturing
20.00
20.00
Commission
4.00
3.60
Contribution margin per racket
16.00
12.40
Sales (units)
50,000
65,000
Total contribution margin
$800,000
$806,000
Contribution margin lost
(Standard rackets)
50,000*
Net impact on profits
$800,000
$756,000
(b)
Standard
Deluxe
Pro
Total
Contribution margin per racket
$10
$16
$20
Increased sales (units)
2,000
1,000
1,000
Total increase in contribution
margin
$20,000
$16,000
$20,000
$56,000
advisable.
(c) Yes. Assuming each line of rackets uses the same manufacturing support
Chapter 10: Using Budgets for Planning and Coordination
– 419 –
$200,000/$125 = 1,600 units
(b) Let X increase in sales in units per month to justify the additional
X
22 500
125 180
,
.
(c) New contribution margin per unit =
Old contribution margin per unit − Decrease in selling price
10–66
(a)
Sales price:
$35.00
Less variable costs:
Raw materials
$16.00
Direct labor
7.00
Manufacturing
4.00
Selling
1.60
28.60
Contribution margin per 100 packets
$6.40
Contribution margin per packet
$0.0640
Total fixed cost
$468,000
Break-even point: 468,000 0.0640 =
7,312,500 packets
Atkinson, Solutions Manual t/a Management Accounting, 6E
(b) Let X number of packets to earn $156,000 profits
X
468 000 156 000
0 0640
9 750 000
, ,
.
, , packets
(c) New contribution margin
$0.$0.0640 5% 7
100 0605
Break-even point
468 000
00605 7735 537
,
., ,
margin ratio.
P
P7%560.28
00.35
40.6
Flexible
Master
Planning
Flexible
Budget
Budget
Variance
Budget
Variance
Actual
90,000 units
80,000 units
80,000 units
Costs
DM
$630,000
$(70,000) F
$560,000
$(10,000) F
$550,000
DL
247,500
(27,500) F
220,000
5,000 U
225,000
FOH
420,000
$0
420,000
(20,000) F
400,000
Total
$1,297,500
$(97,500) F
$1,200,000
$(25,000) F
$1,175,000
Chapter 10: Using Budgets for Planning and Coordination
– 421 –
10–68 (a) Total direct material cost variance
(b) Total direct labor cost variance
(c) Total variable support cost variance
(d) Direct material price variance
= (AP – SP) × AQ
000,1316
000,13
150,205
$
= $(15.780769 – 16) × 13,000
= $2,850 Favorable
(e) Direct material quantity variance
= (AQ – SQ) × SP
(f) Direct labor rate variance
– 422 –
(g) Direct labor efficiency variance
= (AH – SH) × SR
(h) Variable support rate variance
(i) Variable support efficiency (use) variance
= (AH – SH) × SR
10–69 (a) Total direct material cost variance
(b) Total direct labor cost variance
= ($11 × 2,000) – ($10 × 1 × 2,000)
(c) Total flexible support cost variance
= $48,000 – ($25 × 1 × 2,000)