Solutions Manual, Chapter 10 31
Problem 10–21 (45 minutes)
increased at all. This results in a spurious unfavorable variance for
instructor wages. Direct comparisons of budgeted to actual costs are
valid only if the costs are fixed.
2. See the following page.
3. The overall activity variance for net operating income was $435 F
(favorable). That means that as a consequence of the increase in
slightly less than they should have been. This variance is very small
relative to the size of the revenue, so it may not justify investigation.
32 Managerial Accounting for Managers, 4th Edition
Problem 10-21 (continued)
TipTop Flight School
Flexible Budget Performance Report
For the Month Ended July 31
Actual
Results
Revenue
and
Spending
Variances
Flexible
Budget
Activity
Variances
Planning
Budget
Lessons (q) ……………………………….
155
155
150
Revenue ($220q) ………………………..
$33,900
U
$34,100
$1,100
F
$33,000
Expenses:
Instructor wages ($65q) …………….
9,870
F
10,075
325
U
9,750
Aircraft depreciation ($38q) ………..
5,890
5,890
190
U
5,700
Fuel ($15q) ……………………………..
2,750
U
2,325
75
U
2,250
Maintenance ($530 + $12q) ………..
2,450
U
2,390
60
U
2,330
Ground facility expenses
($1,250 + $2q) ………………………
1,540
F
1,560
10
U
1,550
Administration ($3,240 + $1q) …….
3,320
F
3,395
5
U
3,390
Total expense …………………………….
25,820
U
25,635
665
U
24,970
Net operating income …………………..
$ 8,080
$385
U
$ 8,465
$ 435
F
$ 8,030
Solutions Manual, Chapter 10 33
Problem 10-22 (30 minutes)
1. Performance should be evaluated using a flexible budget performance report. In this case, the report
will not include revenues.
St. Lucia Blood Bank
Flexible Budget Performance Report
For the Month Ended September 30
Actual
Results
Spending
Variances
Flexible
Budget
Activity
Variances
Planning
Budget
Liters of blood collected (q) …………….
620
620
500
Medical supplies ($15.00q) ……………..
$ 9,250
$ 50
F
$ 9,300
$1,800
U
$ 7,500
Lab tests ($12.00q) ……………………….
6,180
1,260
F
7,440
1,440
U
6,000
Equipment depreciation ($2,500) ……..
2,800
300
U
2,500
0
2,500
Rent ($1,000) ………………………………
1,000
0
1,000
0
1,000
Utilities ($500) ……………………………..
570
70
U
500
0
500
Administration ($10,000 + $2.50q)……
11,740
190
U
11,550
300
U
11,250
Total expense ………………………………
$31,540
$ 750
F
$32,290
$3,540
U
$28,750
2. The overall unfavorable activity variance of $3,540 was caused by the 24% increase in activity. There
requires some explanation. Was more equipment obtained to collect the additional blood?
34 Managerial Accounting for Managers, 4th Edition
Problem 10–23 (45 minutes)
1. The report prepared by the bookkeeper compares average budgeted per
unit revenues and costs to average actual per unit revenues and costs.
of activity was greater than the budgeted level of activity. As a
consequence, the average cost per unit for any cost that is fixed or
insurance)
should
decline and show a favorable variance. This makes it
is not as useful as a performance report prepared using a flexible
budget.
2. A flexible budget performance report would be much more helpful in
assessing the performance of the company than the report prepared by
the bookkeeper. To construct such a report, we first need to determine
the cost formulas as follows, where q is the number of exchanges
completed:
Revenue ……………………..
$395q
The revenue all comes
from fees.
Legal and search fees …….
$165q
Variable cost
Office expenses ……………
$5,200 + $5q
$5,200 is fixed;
$5 = ($135 × 40 −
$5,200)/40
Equipment depreciation ….
$400
$400 = $10 × 40
Rent …………………………..
$1,800
$1,800 = $45 × 40
Insurance ……………………
$200
$200 = $5 × 40
Solutions Manual, Chapter 10 35
Problem 10–23 (continued)
Exchange Corp.
Flexible Budget Performance Report
For the Month Ended May 31
Actual
Results
Revenue
and
Spending
Variances
Flexible
Budget
Activity
Variances
Planning
Budget
Exchanges completed (q) ………….
50
50
40
Revenue ($395q) …………………….
$19,250
$500
U
$19,750
$3,950
F
$15,800
Expenses:
Legal and search fees ($165q)….
9,200
950
U
8,250
1,650
U
6,600
Office expenses
($5,200 + $5q) …………………..
5,600
150
U
5,450
50
U
5,400
Equipment depreciation ($400) …
400
0
400
0
400
Rent ($1,800) ……………………….
1,800
0
1,800
0
1,800
Insurance ($200) …………………..
200
0
200
0
200
Total expense …………………………
17,200
1,100
U
16,100
1,700
U
14,400
Net operating income ……………….
$ 2,050
$1,600
U
$ 3,650
$2,250
F
$ 1,400
3. On the one hand, the increase in the number of exchanges completed was positive. The overall
unfavorable spending variances, all of which should be investigated by the owner.
36 Managerial Accounting for Managers, 4th Edition
Problem 10-24 (45 minutes)
1. The cost reports are of little use for assessing how well costs were
controlled. The problem is that the company is comparing budgeted
showing whether variable costs were controlled. Since sales have
chronically failed to meet budget, the level of activity in the factory is
2. The company should use a flexible budget approach to evaluate cost
have been for that level of activity.
3. See the following page.
4. The flexible budget performance report provides a much clearer picture
The spending variances indicate that costs were
not
controlled by the
Solutions Manual, Chapter 10 37
Problem 10-24 (continued)
3.
Westmont Corporation
Assembly Department
Flexible Budget Performance Report
For the Month Ended March 31
Actual
Results
Spending
Variances
Flexible
Budget
Activity
Variances
Planning
Budget
Machine-hours (q) ………………………
35,000
35,000
40,000
Supplies ($0.80q)* ……………………..
$ 29,700
$ 1,700
U
$ 28,000
$4,000
F
$ 32,000
Scrap ($0.50q)* …………………………
19,500
2,000
U
17,500
2,500
F
20,000
Indirect materials ($1.40q)*………….
51,800
2,800
U
49,000
7,000
F
56,000
Wages and salaries ($80,000) ……….
79,200
800
F
80,000
0
80,000
Equipment depreciation ($60,000) ….
60,000
0
60,000
0
60,000
Total ……………………………………….
$240,200
$ 5,700
U
$234,500
$13,500
F
$248,000
*The variable cost per machine-hour is obtained by dividing the total variable cost from the planning