Atkinson, Solutions Manual t/a Management Accounting, 6E
– 462 –
10–79 (Note: Small discrepancies in totals are due to rounding.)
Peterborough Food—Flexible Budget Cost Analysis
Master
budget
Planning
variance
Flexible
budget
Flexible
budget
variance
Actual
Line 1—
Production units
945,000
255,000
1,200,000
0
1,200,000
Line 2—
Production units
1,175,000
(230,000)
945,000
0
945,000
Line 1—
Number of batches
189
51
240
(40)
200
Line 2—
Number of batches
235
(46)
189
21
210
Unit-related costs
Line 1—Materials
$1,417,500
382,500
$1,800,000
(131,400)
$1,668,600
Line 1—Packaging
42,525
11,475
54,000
(576)
53,424
Line 1—Labor
221,130
59,670
280,800
(39,900)
240,900
Line 2—Materials
2,056,250
(402,500)
1,653,750
295,313
1,949,063
Line 2—Packaging
44,650
(8,740)
35,910
4,404
40,314
Line 2—Labor
190,350
(37,260)
153,090
19,373
172,463
Total
$3,972,405
5,145
$3,977,550
147,214
$4,124,763
Batch-related costs
Line 1—Materials
$226,800
61,200
$288,000
(23,000)
$265,000
Line 1—Labor
40,824
11,016
51,840
(11,690)
40,150
Line 2—Materials
358,375
(70,150)
288,225
25,725
313,950
Line 2—Labor
67,680
(13,248)
54,432
14,553
68,985
Total
$693,679
(11,182)
$682,497
5,588
$688,085
Chapter 10: Using Budgets for Planning and Coordination
– 463 –
Peterborough Food—Flexible Budget Cost Analysis
Master
Budget
Planning
Variance
Flexible
Budget
Flexible
Budget
Variance
Actual
Product-
sustaining costs
Line 1—Labor
$256,000
20,000
$276,000
11,000
$287,000
Line 1—Other
2,054,000
100,000
2,154,000
(31,000)
2,123,000
Line 2—Labor
305,000
0
305,000
18,000
323,000
Line 2—Other
1,927,000
0
1,927,000
78,000
2,005,000
Total
$4,542,000
120,000
$4,662,000
76,000
$4,738,000
Business-
sustaining costs
Labor
$145,000
0
$145,000
7,000
$152,000
Other
4,560,000
140,000
4,700,000
40,000
4,740,000
Total
$4,705,000
140,000
$4,845,000
47,000
$4,892,000
Total all costs
$13,913,084
253,963
$14,167,047
275,802
$14,442,849
flexible budget variances indicate changes in cost per unit resulting from
material, labor and packaging use and cost per unit of production being
different than planned; the average number of units per batch being different
than planned; the material and labor cost per batch being different than planned;
Atkinson, Solutions Manual t/a Management Accounting, 6E
– 464 –
Flexible Budget Item Calculations
Unit-Related Costs
Line 1
materials cost actual number of boxes grams of material per box
material cost per gram
1200 000 500 003 800 000, , $0.$1, ,
= 1,200,000 1 $0.045 = $54,000
labor cost actual number of boxes labor hours per box labor cost per hour
1200 000 0013 800, , . $18 $280,
Line 2
materials cost actual number of boxes grams of material per box
material cost per gram
945 000 350 005 653 750,$0.$1, ,
labor cost actual number of boxes labor hours per box labor cost per hour
945 000 0009 090, . $18 $153,
Chapter 10: Using Budgets for Planning and Coordination
Batch-Related Costs
Line 1
materials cost actual number of boxes
planned batch size material cost per batch
1200 000
5000 200 000
, ,
,$1,$288,
labor cost actual number of boxes
planned batch size labor hours per batch
labor cost per hour
1200 000
5000 12 840
, ,
,$18 $51,
Line 2
materials cost actual number of boxes
planned batch size material cost per batch
945 000
5000 525 225
,
,$1,$288,
labor cost actual number of boxes
planned batch size labor hours per batch
labor cost per hour
945 000
5000 16 432
,
,$18 $54,
Product-Sustaining Costs
Line 1
labor cost master budget amount expansion costs
256 000 20 000 000, , $276,
other cost master budget amount expansion costs
2054 000 100 000 154 000, , , $2, ,
Line 2
labor cost master budget amount contraction savings
305 000 0000,$305,
other cost master budget amount contraction savings
1927 000 0927 000, , $1, ,
– 466 –
Business-Sustaining Costs
labor cost master budget amount expansion costs
145 000 0000,$145,
other cost master budget amount expansion costs
4560 000 140 000 700 000, , , $4, ,
Unit-Related Cost Flexible Budget Variances
Line 1
– standard price per gram)
Material price variance (1,200,000 515) (0.0027 – 0.0030) $185,400 F
variance
Material flexible budget variance –$185,400 $54,000 $131,400 F
Packaging price variance units of packaging purchased (actual price per unit
standard packaging allowed)
1.00)] $3,240 U
Packaging flexible budget variance packaging price variance packaging
quantity variance
Chapter 10: Using Budgets for Planning and Coordination
– 467 –
Labor rate variance labor hours used (actual rate per labor hour – standard
rate per labor hour)
Labor efficiency variance standard rate per labor hour (labor hours used –
labor hours allowed)
$43,200 F
Labor flexible budget variance labor rate variance labor efficiency variance
Line 2
Material price variance grams of material purchased (actual price per gram
– standard price per gram)
Material quantity variance standard price per gram (material used –
standard material allowed)
$118,125 U
Material flexible budget variance material price variance material quantity
variance
– standard price per unit)
Packaging quantity variance standard price per unit (packaging used –
standard packaging allowed)
quantity variance
Atkinson, Solutions Manual t/a Management Accounting, 6E
– 468 –
rate per labor hour)
Labor efficiency variance standard rate per labor hour (labor hours used –
labor hours allowed)
$17,010 U
Batch-Related Cost Flexible Budget Variances
Line 1
batch – standard material cost per batch)
Materials batch number variance standard material cost per batch (actual
number of batches – standard number of batches)
batch number variance
Batch labor variance actual number of batches (actual labor cost per batch –
standard labor cost per batch)
of batches – standard number of batches)
Batch labor flexible budget variance batch labor variance labor batch
number variance
Chapter 10: Using Budgets for Planning and Coordination
– 469 –
Line 2
batch – standard material cost per batch)
Materials batch number variance standard material cost per batch (actual
number of batches – standard number of batches)
batch number variance
Batch labor variance actual number of batches (actual labor cost per batch –
standard labor cost per batch)
of batches – standard number of batches)
Batch labor flexible budget variance batch labor variance labor batch
number variance
– 470 –
10–80 This problem is known as the free-rider problem in economics and raises the
issue of the point of sacrifice if other people’s behavior, and benefits, will be
affected by your sacrifice. Nate’s position is that the School of Business, judged
by the university’s own standard, is already one of the best performers cost–
An issue in this case is whether the university’s basis for comparison is
legitimate. It is inappropriate to compare the cost per student in a medical
program with the cost per student in an English program, or the cost per student
in a music program with the cost per student in a pure mathematics program.
The major problem here is that there is no motivation for schools (subunits of
the university) to make these cuts. It is likely that past experiences will
continue. The university administration must provide some motivation for the
In the short-run, Nate’s issue reflects moral and professional considerations.
Nate has been asked to cut costs and knows that cuts are possible. Ethically,
Therefore, the first option listed is inappropriate; it is dishonest and unethical.