EXERCISE 10-8
(a) RENSING GROOMERS
Flexible Budget
Activity level
Direct labor hours 550 600 700
Variable costs:
Grooming supplies ($5) $ 2,750 $ 3,000 $ 3,500
Direct labor ($14) 7,700 8,400 9,800
Overhead ($1) 550 600 700
(b) A flexible budget presents expected costs at various levels of produc–
tion volume, not just one, so that comparisons can be made between
actual costs and budgeted costs at the same volume. This allows the
(c) $21,000 ÷ 550 = $38.18
(d) Cost formula is $10,000 + $20(X), where (X) = direct labor hours
Total cost = $10,000 + ($20 X 650) = $23,000.
EXERCISE 10-9
(a) LOWELL COMPANY
Manufacturing Overhead Flexible Budget Report
For the Quarter Ended March 31, 2014
Budget
Actual
Variable costs
Indirect materials
Indirect labor
Utilities
Maintenance
Total variable costs
Fixed costs
Supervisory salaries
Depreciation
Property taxes and
insurance
Maintenance
Total fixed costs
Total costs
$12,000
10,000
8,000
6,000
36,000
36,000
7,000
8,000
5,000
56,000
$92,000
$13,900
9,500
8,700
5,000
37,100
36,000
7,000
8,400
5,000
56,400
$93,500
(b) LOWELL COMPANY
Manufacturing Overhead Responsibility Report
For the Quarter Ended March 31, 2014
Difference
Controllable Costs
Budget
Actual
Favorable F
Unfavorable U
EXERCISE 10-10
(a) SORIA COMPANY
Selling Expense Flexible Budget Report
Clothing Department
For the Month Ended October 31, 2014
Difference
Sales in units
Variable expenses
Sales commissions ($.30)
Advertising expense ($.09)
Travel expense ($.45)
Free samples ($.20)
Total variable
expenses ($1.04)
Fixed expenses
Rent
Sales salaries
Office salaries
Depreciation—sale staff autos
Total fixed expenses
Total expenses
Budget
10,000
$ 3,000
900
4,500
2,000
10,400
1,500
1,200
800
500
4,000
$14,400
Actual
10,000
$ 2,600
850
4,100
1,400
8,950
1,500
1,200
800
500
4,000
$12,950
Favorable F
Unfavorable U
$ 400 F
50 F
400 F
600 F
1,450 F
0 U
0 U
0 U
0
0 U
$1,450 F
EXERCISE 10-11
(a)
KIRKLAND PLUMBING COMPANY
Home Plumbing Services Segment
Responsibility Report
For the Quarter Ended March 31, 2014
Budget
Actual
Difference
Favorable F
Unfavorable U
Service revenue
$25,000
$26,000
$1,000 F
Variable costs:
Material and supplies
1,600
1,200
400 F
Wages
3,000
3,250
250 U
Gas and oil
2,800
3,400
600 U
Total variable costs
7,400
7,850
450 U
Contribution margin
17,600
18,150
550 F
Controllable fixed costs:
Supervisory salaries
9,000
9,500
500 U
Insurance
4,000
3,600
400 F
Equipment depreciation
1,500
1,300
200 F
Total controllable fixed costs
14,500
14,400
100 F
Controllable margin
$ 3,100
$ 3,750
$ 650 F
(b)
MEMO
TO: Lenny Kirkland
FROM: Student
SUBJECT: The Reporting Principles of Performance Reports
reports should:
1. Contain only data that are controllable by the segment’s manager.
2. Provide accurate and reliable budget data to measure performance.
goals.
4. Be tailor-made for the intended evaluation.
5. Be prepared at reasonable intervals.
I hope these suggested guidelines will be helpful in establishing the performance
reporting system to be used by Kirkland Plumbing Company.
EXERCISE 10-12
(a) Fabricating Department = $50,000 fixed costs plus total variable costs
Assembling Department = $40,000 fixed costs plus total variable costs
(b) Fabricating Department = $50,000 + ($2.00 X 53,000) = $156,000.
(c)
$300
Costs in (000)
Total
Budgeted
Cost Line
250
200
Budgeted
Variable
Costs
150
100
50
Budgeted
Fixed Costs
0
10
20
30
40
50
60
70
80
90
100
Direct Labor Hours in (000)
EXERCISE 10-13
(a)
To Dallas Department Manager—Finishing Month: July
Controllable Costs:
Budget
Actual
Fav/Unfav
Direct Materials
Direct Labor
Manufacturing Overhead
Total
$ 44,000
82,000
49,200
$175,200
$ 41,500
83,400
51,000
$175,900
$2,500 F
1,400 U
1,800 U
$ 700 U
(b)
To Assembly Plant Manager—Dallas Month: July
Controllable Costs:
Budget
Actual
Fav/Unfav
Dallas Office
Departments:
Machining
Finishing
Total
$ 92,000
219,000
175,200
$486,200
$ 95,000
220,000
175,900
$490,900
$3,000 U
1,000 U
700 U
$4,700 U
(c)
To Vice President—Production Month: July
Controllable Costs:
Budget
Actual
Fav/Unfav
V P Production
Assembly plants:
Atlanta
Dallas
Tucson
Total
$ 130,000
421,000
486,200
496,500
$1,533,700
$ 132,000
424,000
490,900
494,200
$1,541,100
$2,000 U
3,000 U
4,700 U
2,300 F
$7,400 U
EXERCISE 10-14
(a) MALONE COMPANY
Mixing Department
Responsibility Report
For the Month Ended January 31, 2014
Controllable Cost
Budget
Actual
Difference
Indirect labor
Indirect materials
Lubricants
Maintenance
Utilities
$12,000
7,700
1,675
3,500
5,000
$29,875
$12,250
10,200
1,650
3,500
6,400
$34,000
$ 250 UU
2,500 U
25 F
-0-
1,400 U
$4,125 U
corrective action or modify the budgeted amounts for future months to
reflect changing conditions.
EXERCISE 10-15
(a) 1. Controllable margin ($250,000 – $100,000) $150,000
2. Variable costs ($600,000 – $250,000) 350,000
3. Contribution margin ($450,000 – $320,000) 130,000
EXERCISE 10-15 (Continued)
(b) DEITZ INC.
Women’s Shoe Division
Responsibility Report
For the Month Ended June 30, 2014
Difference
Budget
Actual
Favorable F
Unfavorable U
Sales
Variable costs
Contribution margin
Controllable fixed costs
Controllable margin
$600,000
340,000
260,000
100,000
$160,000
$600,000
350,000
250,000
100,000
$150,000
$ 0 U
10,000 U
10,000 U
0 U
$10,000 U
EXERCISE 10-16
(a) HARRINGTON COMPANY
Sports Equipment Division
Responsibility Report
2014
Budget
Actual
Difference
Sales
$900,000
$880,000
$20,000 U
Variable costs
Cost of goods sold
440,000
408,000
32,000 F
Selling and administrative
60,000
61,000
1,000 U
Total
500,000
469,000
31,000 F
Contribution margin
400,000
411,000
11,000 F
Controllable fixed costs
Cost of goods sold
100,000
105,000
5,000 U
Selling and administrative
90,000
66,000
24,000 F
Total
190,000
171,000
19,000 F
Controllable margin
$210,000
$240,000
$30,000 F
(b) ($240,000 – $90,000)/$1,000,000 = 15%
EXERCISE 10-17
(a) Controllable margin = ($3,000,000 – $1,980,000 – $600,000) = $420,000
ROI = $420,000 ÷ $5,000,000 = 8.4%
(b) 1. Contribution margin percentage is 34%, or ($1,020,000 ÷ $3,000,000)
Increase in controllable margin = $320,000 X 34% = $108,800
EXERCISE 10-18
(a)
DINKLE AND FRIZELL DENTAL CLINIC
Preventive Services
Responsibility Report
For the Month Ended May 31, 2014
Budget
Actual
Difference
Favorable F
Unfavorable U
Service revenue
$39,000
$40,000
$1,000 F
Variable costs
Filling materials
4,900
5,000
100 U
Novocain
3,800
3,900
100 U
Dental assistant wages
2,500
2,500
0
Supplies
2,250
1,900
350 F
Utilities
390
500
110 U
Total variable costs
13,840
13,800
40 F
Contribution margin
25,160
26,200
1,040 F
Controllable fixed costs
Dentist salary
9,400
9,800
400 U
Equipment depreciation
6,000
6,000
0
Total controllable fixed costs
15,400
15,800
400 U
Controllable margin
$ 9,760
$10,400
$ 640 F
Return on investment*
12.2%
13.0%
0.8% F
*Average investment = ($82,400 + $77,600) ÷ 2 = $80,000