6-48
Case 6-36
a.
Actual
Results
Flexible
Budget
Variance
Flexible
Budget
Sales
Volume
Variance
Static
Budget
Unit sales
450,000
0
450,000
50,000 F
400,000
Sales revenue
$3,555,000
$45,000 U
$3,600,000a
$400,000 F
$3,200,000
Less variable product expenses
Direct materials
865,000
212,500 U
652,500b
72,500 U
580,000
Direct labor
348,000
30,000 F
378,000c
42,000 U
336,000
Variable overhead
750,000
21,000 U
729,000d
81,000 U
648,000
Total variable expenses
1,963,000
203,500 U
1,759,500
195,500 U
1,564,000
Contribution margin
$1,592,000
$248,500 U
$1,840,500
$204,500 F
$1,636,000
c. Mama Fran’s did not sell its cookies at the budgeted sales price, as indicated by the unfavorable
Chapter 6 – Performance Evaluation: Variance Analysis
6-49
Case 6-36, continued
d. Cookie mix
AQ × AP
AQ × SP
SQ × SP
4,650,000 oz. × $0.02/oz.
(450,000 units × 10 oz. per unit) × $0.02/oz.
4,500,000 oz. × $0.02/oz.
$93,000
$93,000
$90,000
$0
3,000 U
Direct material price variance
Direct material quantity variance
$3,000 U
Direct materials flexible budget variance
Milk chocolate
AQ × AP
AQ × SP
SQ × SP
2,660,000 oz. × $0.15/oz.
(450,000 units × 5 oz. per unit) × $0.15/oz.
2,250,000 oz. × $0.15/oz.
$532,000
$399,000
$337,500
$133,000 U
$61,500 U
Direct material price variance
Direct material quantity variance
$194,500 U
Direct materials flexible budget variance
6-50
Case 6-36, continued
Almonds
AQ × AP
AQ × SP
SQ × SP
480,000 oz. × $0.50/oz.
(450,000 units × 1 oz. per unit) × $0.50/oz.
450,000 oz. × $0.50/oz.
$240,000
$240,000
$225,000
$0
$15,000 U
Direct material price variance
Direct material quantity variance
$15,000 U
Direct materials flexible budget variance
Chapter 6 – Performance Evaluation: Variance Analysis
6-51
Case 6-36, continued
e. Direct Labor – Mixing
AQ × AP
AQ × SP
SQ × SP
540,000 minutes
60 minutes per hour
× $14.40/DLH
(450,000 units ×
1
60
DLH per unit) × $14.40/DLH
9,000 DLH × $14.40/DLH
7,500 DLH × $14.40/DLH
$108,000
$129,600
$108,000
$21,600 F
$21,600 U
Direct labor rate variance
Direct labor efficiency variance
$0
Direct labor flexible budget variance
Direct Labor – Baking
AQ × AP
AQ × SP
SQ × SP
800,000 minutes
60 minutes per hour
× $18.00/DLH
(450,000 units ×
2
60
DLH per unit) × $18.00/DLH
15,000 DLH × $18.00/DLH
$240,000
$240,000
$270,000
$0
$30,000 F
Direct labor rate variance
Direct labor efficiency variance
$30,000 F
Direct labor flexible budget variance
6-52
Case 6-36, continued
f. Variable Overhead
AQ × AP
AQ × SP
SQ × SP
(540,000 + 800,000) minutes
60 minutes per hour
× $32.40/DLH
(450,000 units ×
3
60
DLH per unit) × $32.40/DLH
22,500 DLH × $32.40/DLH
$750,000
$723,600
$729,000
$26,400 U
$5,400 F
Variable Overhead
Spending Variance
Variable Overhead
Efficiency Variance
$21,000 U
Variable overhead flexible budget variance
Chapter 6 – Performance Evaluation: Variance Analysis
6-53
Case 6-36, continued
g. It appears that chocolate prices increased dramatically, as Nathan
Workers may have been careless in their measurements of
Requiring workers to slice the whole almonds that were purchased by
quantity variances.
Without detailed information about specific variable overhead items, it
is difficult to predict what might have caused such a large unfavorable
application base for variable overhead.
6-54
Case 6-36, continued
h.
TO: Leslie Smith
FROM: Ashley Corley
DATE: May 3, 20XX
RE: April Operating Results
operating income as one might expect.
There were some problems with direct materials. Chocolate prices rose
dramatically during the month, resulting in a $133,000 unfavorable price
variance. All other materials prices were as expected. It appears that
additional investigation.
Labor rates in the mixing department were lower than expected, due to new
inexperienced workers that were hired during the month. These workers’
inexperience contributed to the unfavorable direct labor efficiency variance.
However, this lack of oversight of the baking process resulted in over-
baked cookies that also contributed to the unfavorable direct materials
quantity variances.