Chapter 6 – Performance Evaluation: Variance Analysis
6-21
Exercise 6-26
Direct materials price variance
AQ × AP
AQ × SP
500,000 lbs. purchased × $?/lb.
500,000 lbs. purchased × $6/lb.
$2,750,000
$3,000,000
$250,000 F
Direct materials quantity variance
AQ × SP
SQ × SP
382,000 lbs. used × $6/lb.
(22,000 pumps × 15 lbs.) × $6/lb.
330,000 lbs. used × $6/lb.
$2,292,000
$1,980,000
$312,000 U
6-22
Exercise 6-26, continued
Direct Labor
AQ × AP
AQ × SP
SQ × SP
94,000 DLH × $9/DLH
(22,000 pumps × 4 DLH) × $9/DLH
88,000 DLH × $9/DLH
$940,000
$846,000
$792,000
$94,000 U
$54,000 U
Direct labor rate variance
Direct labor efficiency variance
Variable Overhead
AQ × AP
AQ × SP
SQ × SP
94,000 DLH × $8/DLH
(22,000 pumps × 4 DLH) × $8/DLH
88,000 DLH × $8/DLH
$740,000
$752,000
$704,000
$12,000 F
$48,000 U
Variable overhead
spending variance
Variable overhead
efficiency variance
Fixed Overhead Spending Variance
Actual
Budget
$540,000
25,000 pumps × 4 DLH × $5/DLH
$500,000
$40,000 U
Chapter 6 – Performance Evaluation: Variance Analysis
6-23
SOLUTIONS TO PROBLEMS
Problem 6-27
a.
Unit
180,000 games
Sales revenue
$16.00a
$2,880,000
Less variable expenses:
Direct material
4.50b
810,000
Direct labor
2.00c
360,000
Variable overhead
3.00d
540,000
Total variable expenses
9.50
1,710,000
Contribution margin
$6.50
1,170,000
Less fixed expenses:
Overhead
250,000
Selling and administrative expenses
500,000
Total fixed expenses
750,000
Operating income
$420,000
a
$2,400,000
150,000 games
b
$675,000
150,000 games
c
$300,000
150,000 games
d
$450,000
150,000 games
6-24
Problem 6-27, continued
b.
Actual
Results
Static Budget
Variance
Static
Budget
Unit Sales
180,000
30,000 F
150,000
Sales revenue
$2,870,000
$470,000 F
$2,400,000
Less variable expenses:
Direct material
798,000
123,000 U
675,000
Direct labor
375,000
75,000 U
300,000
Overhead
550,000
100,000 U
450,000
Total variable expenses
1,723,000
298,000 U
1,425,000
Contribution margin
1,147,000
172,000 F
975,000
Less fixed expenses:
Overhead
270,000
20,000 U
250,000
Selling and administrative
500,000
0
500,000
Total fixed expenses
770,000
20,000 U
750,000
Operating income
$377,000
$152,000 F
$225,000
Chapter 6 – Performance Evaluation: Variance Analysis
6-25
Problem 6-27, continued
d.
Actual
Results
Flexible
Budget
Variance
Flexible
Budget
Sales Volume
Variance
Static
Budget
Unit Sales
180,000
0
180,000
30,000 F
150,000
Sales revenue
$2,870,000
$10,000 U
$2,880,000
$480,000 F
$2,400,000
Less variable expenses:
Direct material
798,000
12,000 F
810,000
135,000 U
675,000
Direct labor
375,000
15,000 U
360,000
60,000 U
300,000
Overhead
550,000
10,000 U
540,000
90,000 U
450,000
Total variable expenses
1,723,000
13,000 U
1,710,000
285,000 U
1,425,000
Contribution margin
1,147,000
23,000 U
1,170,000
195,000 F
975,000
Less fixed expenses:
Overhead
270,000
20,000 U
250,000
0
250,000
Selling & administrative
500,000
0
500,000
0
500,000
Total fixed expenses
770,000
20,000 U
750,000
0
750,000
Operating income
$377,000
$43,000 U
$420,000
$195,000 F
$225,000
future results.
Solutions for Davis & Davis, Managerial Accounting, 2nd ed.
6-26
Problem 6-28
until assembly was complete. That affected the materials quantity
variance in a big way. I also believe the materials are causing
aren’t operating properly.”
b. Russell should definitely conduct an investigation before he awards a
the company is worse off than it would have been with regular
materials.
Chapter 6 – Performance Evaluation: Variance Analysis
6-27
Problem 6-29
a. Variable Overhead
AQ × AP
AQ × SP
SQ × SP
21,600 MH × $10/MH
21,000 MH × $10/MH
$214,000
$216,000
$210,000
$2,000 F
$6,000 U
Variable Overhead
Spending Variance
Variable Overhead
Efficiency Variance
b. Fixed Overhead Spending Variance
Actual
Budget
$101,200
$100,000
$1,200 U
6-28
Problem 6-30
a. & b. Direct Materials
AQ × AP
AQ × SP
SQ × SP
102,000 lbs. × $?/lb.
102,000 lbs. × $5.50/lb.
(10,250 cases × 10 lbs.) × $5.50/lb.
102,500 lbs. × $5.50/lb.
$561,000
$561,000
$563,750
$0
$2,750 F
Direct material price variance
Direct material quantity variance
c. & d. Direct Labor
AQ × AP
AQ × SP
SQ × SP
26,500 DLH × $?/DLH
26,500 DLH × $10.00/DLH
(10,250 cases × 2.6 DLH) × $10.00/DLH
26,650 DLH × $10.00/DLH
$267,650
$265,000
$266,500
$2,650 U
$1,500 F
Direct labor rate variance
Direct labor efficiency variance
Chapter 6 – Performance Evaluation: Variance Analysis
6-29
Problem 6-30, continued
e. & f. Variable Overhead
AQ × AP
AQ × SP
SQ × SP
40,950 MH × $7.00/MH
(10,250 cases × 4 MH) × $7.00/MH
41,000 MH × $7.00/MH
$285,012
$286,650
$287,000
$1,638 F
$350 F
Variable Overhead
Spending Variance
Variable Overhead
Efficiency Variance
g. Fixed Overhead Spending Variance
Actual
Budget
$111,000
$110,000
$1,000 U
6-30
Problem 6-30, continued
h.
Price/Rate/Spending
Variance
Quantity/Efficiency
Variance
Direct materials
$ 0
$2,750 F
Direct labor
2,650 U
1,500 F
Variable overhead
1,638 F
350 F
Fixed overhead
1,000 U
0
Total
$2,012 U
$4,600 F