6-41
run that could ultimately be bad for the company in the long run.
6-42
Case 6-34, continued
c.
Actual
Results
Flexible
Budget
Variance
Flexible
Budgeta
Sales Volume
Variance
Static
Budget
Unit sales
3,000
0
3,000
500 F
2,500
Sales revenue
$161,000
$4,000 U
$165,000
$27,500 F
$137,500
Less variable product expenses
Direct material
23,100
900 F
24,000
4,000 U
20,000
Direct labor
18,300
300 U
18,000
3,000 U
15,000
Overhead
60,200
1,300 F
61,500
10,250 U
51,250
Total variable expenses
101,600
1,900 F
103,500
17,250 U
86,250
Contribution margin
59,400
2,100 U
61,500
10,250 F
51,250
Less fixed product expenses
Indirect labor
9,400
3,400 U
6,000
0
6,000
Depreciation expense
5,500
0
5,500
0
5,500
Taxes
2,400
100 U
2,300
0
2,300
Insurance expense
4,500
0
4,500
0
4,500
Total fixed product expenses
21,800
3,500 U
18,300
0
18,300
Gross margin
37,600
5,600 U
43,200
10,250 F
32,950
aFor sales revenue:
$137,500
2,500 budgeted bookcases
× 3,000. Follow same calculations for other variable expenses.
Chapter 6 – Performance Evaluation: Variance Analysis
6-43
6-44
Case 6-34, continued
d. Ken should be more motivated to manage based on the revised
The factors that led to the majority of the variances are the indirect
Case 6-35
a. Direct materials quantity variance – Regular material
AQ × SP
SQ × SP
18,200 lbs. used × $8/lb.
(12,000 bottles × 1.5 lbs.) × $8/lb.
18,000 lbs. × $8/lb.
$145,600
$144,000
$1,600 U
Direct materials quantity variance – Alternate material
AQ × SP
SQ × SP
15,800 lbs. used × $8/lb.
(8,000 bottles × 1.5 lbs.) × $8/lb.
12,000 lbs. × $8/lb.
$126,400
$96,000
$30,400 U
Chapter 6 – Performance Evaluation: Variance Analysis
Case 6-35, continued
$30,400
6-46
Case 6-35, continued
Direct labor efficiency variance – Class II Regular material
AQ × SP
SQ × SP
5,900 DLH × $14/DLH
(4,800 bottles × 1.2 DLH) × $14/DLH
5,760 DLH × $14/DLH
$82,600
$80,640
$1,960 U
AQ × SP
SQ × SP
4,400 DLH × $14/DLH
(3,200 bottles × 1.2 DLH) × $14/DLH
3,840 DLH × $14/DLH
$61,600
$53,760
$7,840 U
Average DLH per bottle
Regular Material
Alternative Material
Class III
8,600 DLH
7,200 bottles
= 1.19 DLH
6,600 DLH
4,800 bottles
= 1.375 DLH
Class II
5,900 DLH
4,800 bottles
= 1.23 DLH
4,400 DLH
3,200 bottles
= 1.375 DLH
is correct.
d. The sales department should be held responsible for the following
Direct labor efficiency variances:
Chapter 6 – Performance Evaluation: Variance Analysis
6-47
Class III workers using alternative materials 11,760 U
problematic for the company, but he accepted the order anyway.
deliver standard quality material.