Part A
2. Selling price……………………………………………………………
…
$100.00
Less variable costs per case:
…
3. Total fixed costs:
Utilities [see part (1)]……………………………………………………………
…
$ 500
4.
COMPREHENSIVE PROBLEM 5
Variable Cost per Unit1. = Difference in Total Cost
Difference in Production
Break-Even Sales (units) =
Fixed Costs
Unit Contribution Margin
22-56
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
COMPREHENSIVE PROBLEM 5 (Continued)
Part B
5.
Cases
6.
Cream Natural
Base Oils Bottles Total
(ozs.) (ozs.) (bottles)
Units required for production 137,500 41,250 16,500
7.
Mixing Filling Total
Hours required for production of:
For the Month Ended August 31, 2014
Production Budget
GENUINE SPICE INC.
Direct Labor Budget
For the Month Ended August 31, 2014
GENUINE SPICE INC.
Direct Materials Purchases Budget
For the Month Ended August 31, 2014
GENUINE SPICE INC.
231
22-57
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
COMPREHENSIVE PROBLEM 5 (Continued)
8.
Fixed1Variable2Total
Factory overhead:
9.
Sales1$150,000
Finished goods inventory, August 1 $ 12,000
Direct materials inventory, August 12$ 392
Direct materials purchases [from part (6)] 23,231
For the Month Ended August 31, 2014
GENUINE SPICE INC.
GENUINE SPICE INC.
Factory Overhead Budget
For the Month Ended August 31, 2014
Budgeted Income Statement
22-58
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
COMPREHENSIVE PROBLEM 5 (Continued)
Part C
10. Direct Materials Price Variance:
Actual price……………………………
…
$ 0.016 $ 0.32 $ 0.42
*Actual quantity:
Cream base: 1,500 cases × 102 ozs. = 153,000 ozs.
Base
Cream Natural
BottlesOils
22-59
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
COMPREHENSIVE PROBLEM 5 (Continued)
Direct Materials Quantity Variance:
Actual quantity1………………………
…
153,000 ozs. 46,500 ozs. 18,750 btls.
1Actual quantity:
Cream base: 1,500 cases × 102 ozs. = 153,000 ozs.
BottlesOilsBase
Cream Natural
22-60
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
COMPREHENSIVE PROBLEM 5 (Continued)
11. Direct Labor Rate Variance:
Actual rate……………………………………………………
…
$18.20 $ 14.00
Direct Labor Time Variance:
Actual time (hours)1………………………………………
…
488 140
1Actual time:
The Mixing Department is producing at a labor time that is slightly better than
Mixing Filling
Department Department
Filling
DepartmentDepartment
Mixing
22-61
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
COMPREHENSIVE PROBLEM 5 (Continued)
12. Factory Overhead Controllable Variance:
Actual variable overhead……………………………………………………
…
$305
13. Factory Overhead Volume Variance:
Normal volume (cases)………………………………………………………
…
1,600
Actual volume (cases)………………………………………………………
…
1,500
22-62
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
COMPREHENSIVE PROBLEM 5 (Concluded)
Actual costs 19,765.00 Applied costs 18,543.75
14. The production volume of 1,375 cases determined in part (5) was planned at the
beginning of August. The variances compare the actual cost and the standard
Total Factory Overhead
Cost Variance
Alternative Computation of Overhead Variances
Factory Overhead
22-63
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
CP 22–1 (FIN MAN); CP 7–1 (MAN)
The use of ideal standards is a legitimate concern for Henry. It is likely that such
standards are too tight and do not include the necessary fatigue factors that are
likely in this type of operation. It seems as though Henry is arguing for practical
CP 22–2 (FIN MAN); CP 7–2 (MAN)
Although the Tungston Company performance measurement system uses both
financial and nonfinancial measures, there may still be some serious performance
CASES & PROJECTS
CP 22–3 (FIN MAN); CP 7–3 (MAN)
This is a case where there is strong evidence that the poor performance that is
(1) the materials price variance is very favorable; (2) the Fabrication Department’s
labor time variance is also very favorable. A possible explanation is that the
Purchasing Department found a low-price supplier. The low price translated into a
favorable variance. Unfortunately, it appears the company is “getting what it paid
22-65
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
CP 22–4 (FIN MAN); CP 7–4 (MAN)
The plant manager is placing pressure on the controller because the controllable
variance is very unfavorable. The claim is that these costs are not really variable at
all. This is a very difficult claim to accept. This is a small company, so it purchases
its power from the outside. The power and light bill is variable to the amount of
22-66
CP 22–5 (FIN MAN); CP 7–5 (MAN)
Use this activity to compare performance measures from different groups and their
selected cities.
The following are examples of performance measures from Worcester,
Massachusetts:
ECONOMIC DEVELOPMENT
Indicator Outcome Type Measured As
Growth of commercial and Performance Change in total assessed value
residential tax base over time
PUBLIC SAFETY
Indicator Outcome Type Measured As
Level of crime Performance Crime rate and clearance rate by type
of crime
All measured both citywide and by neighborhood
22-67
CHAPTER 22 Performance Evaluation Using Variances from Standard Costs
CP 22–5 (FIN MAN); CP 7–5 (MAN) (Continued)
IMPROVED MUNICIPAL SERVICES
Indicator Outcome Type Measured As
Cleanliness of streets Performance Responses to questions on the annual
citizen survey, objective resident ratings
Cleanliness of streets Efficiency Cost per mile of street swept
waste collection
Library usage Performance Circulation per capita
Citizen involvement (citywide Performance % of eligible voters registered;
and by neighborhood) % of registered voters voting
EDUCATION
Indicator Outcome Type Measured As
Student and school achievement Performance MCAS test scores
Graduation rate Performance Percent graduating
22-68
CP 22–5 (FIN MAN); CP 7–5 (MAN) (Concluded)
IMPROVED YOUTH SERVICES
Indicator Outcome Type Measured As
Presence of “at risk youth” Performance Responses to questions from the Youth
Risk Behavior Survey (includes
questions on drug and alcohol use
and violent behavior) by high school
22-69