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38 Managerial Accounting for Managers, 4th Edition
Problem 10-25 (45 minutes)
1. The cost control report compares the planning budget, which was
prepared by the company should
not
be used to evaluate how well costs
were controlled.
Solutions Manual, Chapter 10 39
Problem 10-25 (continued)
2. A report that would be helpful in assessing how well costs were controlled appears below:
Freemont Corporation—Machining Department
Flexible Budget Performance Report
For the Month Ended June 30
Actual
Results
Spending
Variances
Flexible
Budget
Activity
Variances
Planning
Budget
Machine-hours (q) ........................
38,000
38,000
35,000
Direct labor wages ($2.30q) ..........
$ 86,100
$ 1,300
F
$ 87,400
$6,900
U
$ 80,500
Supplies ($0.60q) .........................
23,100
300
U
22,800
1,800
U
21,000
Maintenance ($92,000 + $1.20q) ..
137,300
300
F
137,600
3,600
U
134,000
Utilities ($11,700 + $0.10q) ..........
15,700
200
U
15,500
300
U
15,200
Supervision ($38,000) ..................
38,000
0
38,000
0
38,000
Depreciation ($80,000) .................
80,000
0
80,000
0
80,000
Total ...........................................
$380,200
$ 1,100
F
$381,300
$12,600
U
$368,700
Note that in this new report the overall spending variance is favorable—indicating that costs were
most likely under control.
40 Managerial Accounting for Managers, 4th Edition
Case 10-26 (30 minutes)
It is difficult to imagine how Tom Kemper could ethically agree to go along
recommendations.” Failing to disclose the entire amount owed on the
industrial engineering contract violates this standard.
Individuals will differ in how they think Kemper should handle this
situation. In our opinion, he should firmly state that he is willing to call
Laura, but even if the bill does not arrive, he is ethically bound to properly
It is important to note that the problem may be a consequence of
inappropriate use of performance reports by corporate headquarters. If the
Solutions Manual, Chapter 10 41
Case 10-27 (45 minutes)
1. The flexible budget would be prepared as follows:
Boyne University Motor Pool
Spending Variances
For the Month Ended March 31
Actual
Results
Flexible
Budget
Spending
Variances
Miles (q1) .........................................
63,000
63,000
Autos (q2) ........................................
21
21
Gasoline ($0.15q1) ...........................
$ 9,350
$ 9,450
$100
F
Oil, minor repairs, parts ($0.04q1) .....
2,360
2,520
160
F
Outside repairs ($75q2) ....................
1,420
1,575
155
F
Insurance ($100q2) ..........................
2,120
2,100
20
U
Salaries and benefits ($7,540) ..........
7,540
7,540
0
Vehicle depreciation ($250q2) ...........
5,250
5,250
0
Total ...............................................
$28,040
$28,435
$395
F
2. The original report is based on a static budget approach that does not
allow for variations in the number of miles driven from month to month,
miles rather than the 63,000 miles actually driven during the month.
42 Managerial Accounting for Managers, 4th Edition
Case 10-28 (75 minutes)
1. The cost formulas for The Little Theatre appear below, where q1 is the
number of productions and q2 is the number of performances:
o Theater hall rent: $500q2. Variable with respect to the number of
o Administrative expenses: $32,400 + $1,080q1 +$40q2.
The Little Theatre
Flexible Budget
For the Year Ended December 31
Actual number of productions (q1) ...................................
7
Actual number of performances (q2) ................................
168
Actors’ and directors’ wages ($2,000q2) ...........................
$336,000
Stagehands’ wages ($300q2) ...........................................
50,400
Ticket booth personnel and ushers’ wages ($150q2) .........
25,200
Scenery, costumes, and props ($18,000q1) ......................
126,000
Theater hall rent ($500q2) ...............................................
84,000
Printed programs ($250q2) ..............................................
42,000
Publicity ($2,000q1) ........................................................
14,000
Administrative expenses ($32,400 + $1,080q1 +$40q2).....
46,680
Total expense .................................................................
$724,280
Solutions Manual, Chapter 10 43
Case 10-28 (continued)
2. The flexible budget performance report follows:
The Little Theatre
Flexible Budget Performance Report
For the Year Ended December 31
Actual
Results
Spending
Variances
Flexible
Budget
Activity
Variances
Planning
Budget
Number of productions (q1) ........
7
7
6
Number of performances (q2) .....
168
168
108
Actors' and directors' wages
($2,000q2) ...............................
$341,800
$5,800
U
$336,000
$120,000
U
$216,000
Stagehands' wages ($300q2) .......
49,700
700
F
50,400
18,000
U
32,400
Ticket booth personnel and
ushers' wages ($150q2) ............
25,900
700
U
25,200
9,000
U
16,200
Scenery, costumes, and props
($18,000q1) .............................
130,600
4,600
U
126,000
18,000
U
108,000
Theater hall rent ($500q2) ..........
78,000
6,000
F
84,000
30,000
U
54,000
Printed programs ($250q2) ..........
38,300
3,700
F
42,000
15,000
U
27,000
Publicity ($2,000q1) ....................
15,100
1,100
U
14,000
2,000
U
12,000
Administrative expenses
($32,400 + $1,080q1 +$40q2) ..
47,500
820
U
46,680
3,480
U
43,200
Total expense ............................
$726,900
$2,620
U
$724,280
$215,480
U
$508,800
44 Managerial Accounting for Managers, 4th Edition
Case 10-28 (continued)
3. The overall unfavorable spending variance is a very small percentage of
favorable variances for theater hall rent and the printed programs.
Assuming that the quality of the printed programs has not noticeably
4. Average costs may not be very good indicators of the additional costs of
any particular production or performance. The averages gloss over
elaborate and costly costumes and props. Consequently, both the
production costs and the cost per performance will be much higher for
