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Solutions Manual, Chapter 10 41
Problem 9-24 (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.
This approach implicitly assumes that all costs are strictly variable; only
variable costs should be constant on a per unit basis. The average fixed
cost should decrease as the level of activity increases and should
increase as the level of activity decreases. In this case, the actual level
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
T
he revenue all comes
from fees.
Le
g
al and search fees …… $165q Variable cost
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42 Managerial Accounting, 16th Edition
Problem 9-24 (continued)
Exchan
g
e Corp.
Flexible Budget Performance Report
For the Month Ended May 31
Actual
Results
Revenue
and
Spending
Variances
Flexible
Budget
Activity
Variances
Planning
Budget
Exchan
g
es completed (q) …………. 50 50 40
Revenue ($395q) ……………………. $19,250 $500 U $19,750 $3,950 F $15,800
Expenses:
3. On the one hand, the increase in the number of exchanges completed was positive. The overall
favorable activity of $2,250 indicates that the net operating income should have increased by that
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Solutions Manual, Chapter 9 43
Problem 9-25 (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
costs at one level of activity to actual costs at another level of activity.
Costs that are variable will naturally be different at these two different
levels of activity. Although the cost reports do a good job of showing
2. The company should use a flexible budget approach to evaluate cost
control. Under the flexible budget approach, the actual costs incurred in
3. See the following page.
4. The flexible budget performance report provides a much clearer picture
of the performance of the Assembly Department than the original cost
control report prepared by the company. The overall activity variance is
$13,500 F (favorable) which simply reflects the fact that the actual level
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44 Managerial Accounting, 13th Edition
Problem 9-25 (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
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Solutions Manual, Chapter 9 45
Problem 9-26 (45 minutes)
1. The cost control report compares the planning budget, which was
prepared for 35,000 machine-hours, to actual results for 38,000
machine-hours. This is like comparing apples to oranges. Costs that are
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46 Managerial Accounting, 13th Edition
Problem 9-26 (continued)
2. A report that would be helpful in assessing how well costs were controlled appears below:
Freemont Corporation
—
Machinin
g
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 wa
g
es* ($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 +
T
* The variable cost per machine-hour is obtained by dividing the total variable cost from the
** The variable cost per machine-hour is obtained by subtracting the fixed cost (given) from the