978-1260153132 Chapter 9 Part 4

Solutions Manual, Chapter 9 31

Problem 9-19 (45 minutes)

The completed flexible budget performance report is as follows:

Ray Company

Production Department Flexible Budget Performance Report

For the Month Ended August 31

Actual

Results

Spending

Variances

Flexible

Budget

Activity

Variances

Planning

Budget

Labor-hours (q) …………………………. 9,480 9,480 9,000

Direct labor ($14q) …………………….. $134,730 $2,010 U $132,720 $6,720 U $126,000

Indirect labor ($7,420 + $1.50q) …… 19,860 1,780 F 21,640 720 U $20,920

Utilities ($6,500 + $0.70q) …………… 14,586 1,450 U 13,136 336 U 12,800

32 Managerial Accounting, 16th Edition

Problem 9-19 (continued)

Direct labor

:

Cost formula: $132,720 ÷ 9,480 labor-hours = $14

Indirect labor

:

Fixed portion of cost formula: $21,640 ‒ (9,480 labor-hours × $1.50) =

$7,420

Actual results: $21,640 ‒ $1,780 = $19,860

Utilities

:

Variable portion of cost formula: $12,800 ‒ $6,500 = $6,300; $6,300 ÷

Supplies

:

Variable portion of cost formula: $4,444 ‒ $4,300 = $144; $144 ÷ (9,480 ‒

9,000) = $0.30

Fixed portion of cost formula: $4,300 ‒ (9,000 labor-hours × $0.30) =

$1,600

Equipment depreciation

:

Planning budget: $78,400

Flexible budget: $78,400

Factory administration

:

Planning budget: $18,700 + (9,000 labor-hours × $1.90) = $35,800

Flexible budget: $18,700 + (9,480 labor-hours × $1.90) = $36,712

Activity variance: $36,712 ‒ $35,800 = $912 U

Solutions Manual, Chapter 9 33

Problem 9-19 (continued)

Factory administration

:

34 Managerial Accounting, 16th Edition

Problem 9-20 (30 minutes)

1. The activity variances are shown below:

FAB Corporation

Activity Variances

For the Month Ended March 31

Flexible

Budget

Planning

Budget

Activity

Variances

Machine-hours (q) …………………….. 26,000 30,000

Utilities ($20,600 + $0.10q)………… $ 23,200 $ 23,600 $ 400

F

Maintenance ($40,000 + $1.60q) …. 81,600 88,000 6,400

F

T

F

The activity variances are all favorable because the actual activity was

F

Solutions Manual, Chapter 9 35

Problem 9-20 (continued)

2. The spending variances are computed below:

FAB Corporation

Spending Variances

For the Month Ended March 31

Actual

Results

Flexible

Budget

Spending

Variances

Machine-hours (q) …………………….. 26,000 26,000

Utilities ($20,600 + $0.10q)………… $ 24,200 $ 23,200 $1,000 U

Maintenance ($40,000 + $1.60q) …. 78,100 81,600 3,500 F

An unfavorable spending variance means that the actual cost was

greater than what the cost should have been for the actual level of

activity. A favorable spending variance means that the actual cost was

36 Managerial Accounting, 16th Edition

Problem 9-21 (30 minutes)

1.

Milano Pizza

Flexible Budget Performance Report

For the Month Ended November 30

Actual

Results

Revenue

and

Spending

Variances

Flexible

Budget

Activity

Variances

Planning

Budget

Pizzas (q1) ……………………………….. 1,240 1,240 1,200

Deliveries (q2) ………………………….. 174 174 180

Revenue ($13.50q1) …………………… $17,420 $680 F $16,740 $540 F $16,200

Expenses:

Pizza in

g

redients ($3.80q1) ……….. 4,985 273 U 4,712 152 U 4,560

Kitchen staff ($5,220)………………. 5,281 61 U 5,220 0 5,220

Solutions Manual, Chapter 9 37

Problem 9-21 (continued)

2. Some of the activity variances are favorable and some are unfavorable.

This occurs because there are two cost drivers (i.e., measures of

activity) and one is up while the other is down. The actual number of

38 Managerial Accounting, 16th Edition

Problem 9-22 (45 minutes)

1. The variance report should

not

be used to evaluate how well costs were

controlled. In July, the planning budget was based on 150 lessons, but

the actual results are for 155 lessons—an increase of more than 3%

over budget. Consequently, the actual revenues and many of the actual

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

activity from 150 lessons to 155 lessons, the net operating income

should have been up $435 over budget. However, it wasn’t. The

budgeted net operating income was $8,030 and the actual net operating

income was $8,080, so the profit was up by only $50—not $435 as it

should have been. There are many reasons for this—as shown in the

Solutions Manual, Chapter 9 39

Problem 9-22 (continued)

T

ipTop Fli

g

ht 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 $200 U $34,100 $1,100 F $33,000

Expenses:

Instructor wa

g

es ($65q) …………….. 9,870 205 F 10,075 325 U 9,750

A

ircraft depreciation ($38q)………… 5,890 0 5,890 190 U 5,700

A

T

40 Managerial Accounting, 16th Edition

Problem 9-23 (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

2. The overall unfavorable activity variance of $3,540 was caused by the 24% increase [= (620 – 500)

÷ 500] in activity. There is no reason to investigate this particular variance. The overall spending

variance is $750 F, which would seem to indicate that costs were well-controlled. However, the

favorable $1,260 spending variance for lab tests is curious. The fact that this variance is favorable