CHAPTER 10
SOLUTIONS TO PROBLEMS: SET B
PROBLEM 10-1B
(a) SPEIER COMPANY
Flexible Monthly Manufacturing Overhead Budget
Assembly Department
For the Year 2017
Activity level
Direct labor hours
Variable costs
Indirect labor ($.30)
Indirect materials ($.20)
Fixed costs
Supervision
Depreciation
Insurance
18,000
$ 5,400
3,600
6,300
2,500
1,000
20,000
$ 6,000
4,000
6,300
2,500
1,000
22,000
$ 6,600
4,400
6,300
2,500
1,000
24,000
$ 7,200
4,800
6,300
2,500
1,000
PROBLEM 10-1B (Continued)
(b) SPEIER COMPANY
Manufacturing Overhead Budget Report (Flexible)
Assembly Department
For the Month Ended January 31, 2017
Difference
Total costs
Direct labor hours (DLH)
Variable costs
Indirect labor ($0.30)
Indirect materials ($0.20)
Fixed costs
Supervision*
Depreciation
Budget at
20,000 DLH
$ 6,000
4,000
6,300
2,500
Actual Costs
20,000 DLH
$ 6,200
3,600
6,300
2,500
Favorable F
Unfavorable U
$200 U
400 F
0 U
0 U
(c) Control over both variable and fixed costs was good.
PROBLEM 10-2B
(a) GONZALEZ COMPANY
Flexible Monthly Manufacturing Overhead Budget
Assembly Department
For the Year 2017
Activity level
Direct labor hours
Variable costs
Indirect labor ($1.00)
Indirect materials ($.50)
Utilities ($.30)
Fixed costs
Supervision
Depreciation
22,500
$22,500
11,250
6,750
12,000
8,000
25,000
$25,000
12,500
7,500
12,000
8,000
27,500
$27,500
13,750
8,250
12,000
8,000
30,000
$30,000
15,000
9,000
12,000
8,000
PROBLEM 10-2B (Continued)
(b) GONZALEZ COMPANY
Assembly Department
Manufacturing Overhead Budget Report (Flexible)
For the Month Ended July 31, 2017
Difference
Total costs
Direct labor hours (DLH)
Variable costs
Indirect labor ($1.00)
Indirect materials ($0.50)
Fixed costs
Supervision
Depreciation
Budget at
27,500 DLH
$27,500
13,750
12,000
8,000
Actual Costs
27,500 DLH
$26,000
11,350
12,000
8,000
Favorable F
Unfavorable U
$1,500 F
2,400 F
0 F
0 F
(c) Based on the above budget report, control over costs was effective.
(d) The formula is fixed costs of $25,000 plus total variable costs of
PROBLEM 10-2B (Continued)
(e)
$100
Total
Budgeted
Cost Line
Overhead Costs in (000)
90
80
70
40
30
20
Budgeted
Fixed Costs
10
0
5
10
15
20
25
30
Direct Labor Hours in (000)
PROBLEM 10-3B
(a) The formula is fixed costs $21,000 plus total variable costs of $2.60 per
unit ($130,000 ÷ 50,000 units).
(b) HARDESTY COMPANY
Packaging Department
Budget Report (Flexible)
For the Month Ended May 31, 2017
Difference
Units
Variable costs*
Direct materials ($.80 X 55,000)
Direct labor ($.90 X 55,000)
Indirect materials ($.30 X 55,000)
Fixed costs
Rent
Supervision
Budget at
55,000 Units
$ 44,000
49,500
16,500
10,000
7,000
Actual Costs
55,000 Units
$ 41,000
47,300
15,200
10,000
7,000
Favorable F
Unfavorable U
$3,000 F
2,200 F
1,300 F
0 F
0 F
*Note that the per unit variable costs are computed by taking the budget
amount at 50,000 units and dividing it by 50,000. For example, direct
This report provides a better basis for evaluating performance because
the budget is based on the level of activity actually achieved.
PROBLEM 10-3B (Continued)
(c) HARDESTY COMPANY
Packaging Department
Budget Report (Flexible)
For the Month Ended June 30, 2017
Difference
Units
Variable costs
Direct materials ($.80 X 40,000)
Direct labor ($.90 X 40,000)
Indirect materials ($.30 X 40,000)
Indirect labor ($.25 X 40,000)
Fixed costs
Rent
Supervision
Budget at
40,000 Units
$ 32,000
36,000
12,000
10,000
10,000
7,000
Actual Costs
40,000 Units
$ 32,800*
37,840
12,160
10,400
10,000
7,000
Favorable F
Unfavorable U
$ 800 U
1,840 U
160 U
400 U
0 U
0 U
May
(actual)
June
(actual)
Direct materials
Direct labor
Indirect materials
$ 41,000 X 80%
47,300 X 80%
15,200 X 80%
=
$ 32,800
37,840
12,160
PROBLEM 10-4B
(a) GUZMAN INC.
Home Appliance Division
Responsibility Report
For the Year Ended December 31, 2017
Difference
Budget
Actual
Favorable F
Unfavorable U
Sales
Variable costs
Cost of goods sold
Controllable fixed costs
Cost of goods sold
$2,400,000
1,200,000
200,000
$2,310,000
1,258,000
192,000
$90,000 U
58,000 U
8,000 F
(b) The manager did not effectively control revenues and costs. Contribution
margin was $140,000 unfavorable and controllable margin was $135,000
unfavorable. Contribution margin was unfavorable primarily because
(c) Two costs are excluded from the report: (1) noncontrollable fixed costs
PROBLEM 10-5B
(a) STRAUSS COMPANY
Lawnmower Division
Responsibility Performance Report
For the Year Ended December 31, 2017
(in thousands of dollars)
Difference
Budget
Actual
Favorable F
Unfavorable U
Sales
Variable costs
Cost of goods sold
Selling and administrative
Controllable fixed costs
Cost of goods sold
Selling and administrative
$3,050
1,300
340
270
140
$2,900
1,400
300
270
140
$150 U
100 U
40 F
0 U
0 U
PROBLEM 10-5B (Continued)
(b) The performance of the manager of the Lawnmower Division was below
budget expectations for the year. The item that top management would
likely investigate first is the reason why sales were $150,000 below
(c) 1. [$790,000 + ($1,400,000 X 20%)] ÷ $5,000,000 = 21.4%.
PROBLEM 10-6B
(a) No. 1
To Cutting Department Manager—Phoenix Division Month: January
Controllable Costs:
Budget
Actual
Fav/Unfav
Indirect labor
Indirect materials
$ 90,000
61,000
$ 95,000
62,700
$ 5,000 U
1,700 U
No. 2
To Division Production Manager—Phoenix Month: January
Controllable Costs:
Budget
Actual
Fav/Unfav
Phoenix Division
Departments:
Cutting
$ 70,000
224,000
$ 73,100
241,300
$ 3,100 U
17,300 U
No. 3
To Vice-President—Production Month: January
Controllable Costs:
Budget
Actual
Fav/Unfav
V-P Production
Divisions:
Phoenix
$ 70,000
716,000
$ 72,000
754,400
$ 2,000 U
38,400 U
PROBLEM 10-6B (Continued)
No. 4
To President Month: January
Controllable Costs:
Budget
Actual
Fav/Unfav
President
Vice-Presidents:
Production
$ 91,300
2,251,000
$ 94,200
2,310,400
$ 2,900 U
59,400 U
(b) 1. Within the Phoenix division the rankings of the department managers
were: (1) Finishing, (2) Shaping, and (3) Cutting. If the rankings
3. Rankings in terms of dollars may be somewhat misleading in this
case because of the substantial difference between the production
*PROBLEM 10-7B
2. Residual Income = Controllable Margin – (Minimum Rate of
Return X Average Operating Assets)
(b) The management of Washington Enterprises would clearly have
accepted the investment opportunity it had in 2017 if residual income
had been used as the performance measure because an increase in