Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21
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Problem 21-5BA (15 minutes)
(a) Variable Overhead Spending and Efficiency Variances
Actual Overhead
AH x AVR
Budgeted Overhead
AH x SVR
Applied Overhead
SH x SVR
(b) Fixed Overhead Spending and Volume Variances
Actual Overhead
Budgeted Overhead
Applied Overhead
252,000 x $7
(c) Controllable variance
Variable overhead spending variance …………………………..
$ 50,000 F
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21
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Problem 21-6BA (45 minutes)
Part 1
a.
June 30*
Work in Process Inventory ………………………..
130,000
Direct Materials Quantity Variance …….
5,000
Direct Materials Price Variance …………
1,500
b.
June 30
Work in Process Inventory ………………………..
67,500
Direct Labor Rate Variance ………………………..
500
Factory Wages Payable ……………………..
c.
June 30
Work in Process Inventory ………………………..
230,000
Controllable Variance ………………………………..
8,000
Volume Variance ……………………………………….
12,000
Factory Overhead …………………………….
* Alternatively, some companies compute and record the price variance
when materials are purchased. This would yield two separate entries:
(1) Purchase of materials
Raw Materials Inventory ………………………
125,000
Direct Materials Price Variance ………
1,500
Accounts Payable ………………………….
123,500
(2) Issuance of materials into production
Work in Process Inventory …………………..
130,000
Raw Materials Inventory …………………
125,000
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21
Problem 21-6BA (Concluded)
Part 2
The largest variances occur with:
▪ Direct materials quantity variance
▪ Overhead volume variance
The manager should go to the purchasing department to determine why
materials were acquired at a lower price, and to the production department
to find out why the process used less materials and less labor hours than
expected.
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SERIAL PROBLEM — SP 21
Serial Problem, Business Solutions (30 minutes)
Business Solutions
Flexible Budget Performance Report
Flexible
Actual
For Quarter Ended June 30
Budget
Results
Variances
Desk sales (150 units) ……….
$187,500
$186,000
$1,500
U
Variable expenses …………….
U
U
Supporting computations
Total budgeted desk sales …………………………………..
$180,000
Total units budgeted ……………………………………………
144
Budgeted selling price ………………………………………..
$1,250 per unit
Flexible budget units …………………………………………..
150
Flexible budget sales …………………………………………..
$187,500
Total budgeted chair sales …………………………………..
$ 36,000
Total units budgeted ……………………………………………
Budgeted selling price ………………………………………..
Flexible budget units …………………………………………..
Flexible budget sales …………………………………………..
$ 40,000
Total units budgeted ……………………………………………
144
Budgeted variable expenses per desk …………………
Flexible budget units …………………………………………..
150
Flexible budget variable expenses for desks ……….
$112,500
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Serial Problem, Business Solutions (concluded)
Total budgeted variable costs for chairs ………………
$ 18,000
Total units budgeted ……………………………………………
72
Budgeted variable expenses per chair …………………
$ 250
Flexible budget units …………………………………………..
80
Flexible budget variable expenses for chairs ……….
$ 20,000
Total budgeted variable expenses* ………………………
Total actual expenses ………………………………………….
Actual fixed expenses …………………………………………
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Company Analysis — AA 21-1
1. Sales price and sales volume variances—MacBook Pro
Sales Actual Sales
Flexible Budget
Fixed Budget
Units 1,150
1,150
1,000
2. Total sales variance is $40,000 favorable.
Comparative Analysis — AA 21-2
$ millions
1. Sales growth rate, Apple = $164,688 – $149,337 = 10.3% (rounded)
$149,337
2. Estimated sales if product segment growth rates continue:
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Extended Analysis — AA 21-3
1. Sales price and sales volume variances—TV
Sales Actual Sales
Flexible Budget
Fixed Budget
Units 3,000
3,000
2,000
2. Total sales variance is $300,000 unfavorable.
DISCUSSION QUESTIONS
1. Fixed budget performance reports have limited usefulness for cost control because they
2. The two main purposes of flexible budgets are to a) plan for different activity levels, thus
enabling “what–if” analyses, and b) aid in evaluating past performance.
4. A flexible analysis of the difference between actual performance and budgeted
performance—often called variance analysis. Its usefulness stems from the fact that
both the budgeted and actual results are based on the same level of activity.
5. Management by exception involves managers focusing on the most significant variances
for analysis and action strategies. It also results in less attention given to areas where
6. The human resource department is usually responsible for a direct labor rate variance.
The production department is usually responsible for a direct labor efficiency variance.
7. A price variance is that portion of a cost variance caused by a difference between the
8. Standard costs are used to establish a basis to assess the reasonableness of actual
costs. A comparison of standard costs to actual costs should help management identify
9. An overhead volume variance is the difference between (a) the amount of (fixed) overhead
that would have been budgeted at the actual operating level achieved during the period
10. A controllable variance is the difference between (a) the total overhead cost actually
incurred in the period and (b) the total overhead cost that would have been budgeted at
11. A standard overhead rate is a measure computed and used in a standard cost system to
apply overhead costs to products. Before the period begins, budgeted total overhead
12. Flexible budget reports compare actual costs to budgeted costs, and reports differences
13. Before a period starts, the manager can prepare flexible budgets for the various types of
advertising. Then, she could estimate both the best and worst case scenarios for the
14. Apple schedules appointments with customers to service Apple computers and iPhones.
These service appointments require standard hours at standard rates to complete,
depending on the type of service. Apple can calculate the price (rate) and quantity
(efficiency) variances for these various services to maintain control over them.
15. The controllable variance should not be affected by achieving an actual operating level
different from the budgeted level. If the company operated at 75% of capacity, a
16. Positive features of standard cost systems include: Provides benchmarks to be used in
management by exception; motivates employees to work towards goals; standards are
useful in the budgeting process; and standard cost systems can isolate reasons for good
or bad performance. Negative features of standard cost systems include: Standards are
costly to develop and keep up-to-date; variances are not timely for adapting to rapidly
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Ethics Challenge — BTN 21-1
A typical answer might include three individuals selected from the following
specialty areas (answers will vary among students):
Specialty
Information Input and Explanation
Engineer ……………………….
Scientific support for quantity standard.
Production manager ……..
Supplier ………………………..
Identify reasonable price of inputs.
Purchasing manager ……..
Identify reasonable price of inputs.
Communicating in Practice — BTN 21-2
MEMORANDUM
TO:
FROM:
DATE:
SUBJECT:
Variance
Cost of Goods Sold
Income
Part 1.
Favorable
Decrease
Increase
Part 2.
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Teamwork in Action — BTN 21-3
Answers will vary depending on the two industries selected. Two examples
are identified and briefly described below:
Entrepreneurial Decision — BTN 21-4
To: Romney Evans, Jessica Murphy, and Bill Adler, True Fit
Re: Management Accounting Quote Interpretations
Quote 1: “Variances are not explanations”
The author of this quote is emphasizing that variances are only a starting point
Quote 2: “Management’s goal is not to minimize variances.”
The author of this quote understands that the real objective of management is