Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21
1287
Chapter 21
Flexible Budgets and Standard Costs
QUICK STUDIES
Quick Study 21-1 (15 minutes)
BEECH COMPANY
Flexible Budget Performance Report
For Month Ended May 31
Flexible
Actual
Budget
Results
Variances
Sales …………………………
$1,300,000
$1,275,000
$25,000
U
Quick Study 21-2 (5 minutes)
Flexible Budget
Variable
Amount
per Unit
Total
Fixed
Cost
Flexible Budget
for Unit Sales of
20,000
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21
1288
Quick Study 21-3 (10 minutes)
Compute the sales price and variable costs per unit (at 20,000 units):
Sales price per unit = $400,000/20,000 units = $20 per unit
Sales (26,000 units x $20) ……………………
Fixed costs (unchanged) …………………….
Quick Study 21-4 (10 minutes)
Flexible Budget Performance Report
Flexible
Actual
Budget*
Results
Variances
Sales (26,000 units) ……………………..
$520,000
$480,000
$40,000
U
U
$266,000
$223,000
U
Quick Study 21-5 (5 minutes)
Inputs
Standard quantity
or hours
Standard price or
rate
Standard
cost per unit
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21
Quick Study 21-6 (5 minutes)
Actual cost (100 bats) …………………………………………………………..
$5,400
Quick Study 21-7 (10 minutes)
Actual quantity and price (given) ………………………………………….
$540,000
Quick Study 21-8 (10 minutes)
Direct materials price variance:
Actual quantity and actual price (given) ………………………………………
$540,000
Actual quantity and standard price (300,000 lbs. x $2 per lb.) ………..
$600,000
$120,000
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21
1290
Quick Study 21-9 (15 minutes)
Direct materials price variance = (AQ x AP) – (AQ x SP) or AQ x (AP – SP)
Substituting this information in the price variance formula:
$4,000 U = AQ x ($78.00 – $77.50)
Quick Study 21–10 (10 minutes)
Difference between Actual and Standard cost is the Price and Quantity variances.
Quick Study 21–11 (10 minutes)
Direct labor rate variance: (AH x AR) vs (AH x SR)
Direct labor efficiency variance: (AH x SR) vs (SH x SR)
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21
1291
Quick Study 21–12 (10 minutes)
Difference between Actual and Standard cost is the Rate
and Efficiency variances.
Quick Study 21-13 (10 minutes)
a.
Actual total overhead …………………………………………
$980
Controllable variance …………………………………………
$180
U
b.
Budgeted (flexible) overhead at units produced …..
$800
Controllable variance ………………………………………….
$100
F
c.
Actual total overhead ………………………………………….
$980
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21
Quick Study 21-14 (10 minutes)
a. Flexible budget
Total variable overhead costs (110,000 units x $1.40*) …………..
$154,000
b. Flexible budget
Budgeted variable overhead (from part a) …………………………….
$154,000
c.
Actual total overhead …………………………………………………………..
$262,800
$ 15,200
Quick Study 21-15 (10 minutes)
a.
Actual total overhead …………………………………………………………..
$ 28,175
Standard overhead applied …………………………..………………………
Total overhead variance ……………………………………………………….
40,180
$ 12,005
F
b.
Actual total overhead …………………………………………………………..
$ 28,175
Budgeted (flexible) overhead
Controllable variance …………………………………………………………..
F
Quick Study 21-16 (5 minutes)
Budgeted (flexible) overhead (from QS 21–15) ……………………….
$ 42,380
Volume variance …………………………..……………………………………..
U
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21
Quick Study 21-17 (10 minutes)
a.
Standard overhead applied ………………………………………………………
$225,000
U
Actual total overhead ………………………………………………………………
$265,400
b.
Total overhead variance = Controllable variance + Volume variance
Quick Study 21-18A (10 minutes)
Work in Process Inventory ……………………………………..
225,000
Quick Study 21-19A (10 minutes)
Actual variable overhead (4,700 MH x $4.15 per MH)* …………….
$19,505
Applied variable overhead (5,000 MH x $4.00 per MH)** …………
Variable overhead variance …………………………………………………..
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21
Quick Study 21–20A (15 minutes)
Variable overhead spending and efficiency variances
Actual Overhead
AH x AVR
AH x SVR
Applied Overhead
SH x SVR
$19,505
$20,000
Quick Study 21-21 (15 minutes)
Sales
Actual Results
Flexible Budget
Fixed Budget
Units
50
50
45
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Quick Study 21-22 (15 minutes)
Sales
Actual Results
Flexible Budget
Fixed Budget
Units
182,158
182,158
191,158
Quick Study 21-23 (10 minutes)
1. Budgeted direct materials = $9.25 x 1,200 shipments = $11,100
Quick Study 21-24 (10 minutes)
a. Standard overhead rate before sustainability improvement:
b. Standard overhead rate after sustainability improvement:
Quick Study 21-25 (5 minutes)
a.
Standard cost card …………………………..
3
Management by exception ……………….
2
1
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21
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EXERCISES
Exercise 21-1 (5 minutes)
Following management by exception, this company will focus on the four
variances that exhibit differences of $400 or more from the standard. These
Exercise 21-2 (20 minutes)
Item
Cost
a. Bike frames …………………………………………………
Variable
b. Screws for assembly ………………………………….
Variable
Variable
Variable
Variable
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21
1297
Exercise 21-3 (30 minutes)
3.
TEMPO COMPANY
Flexible Budgets
Variable
Amount
per Unit*
Total
Fixed
Cost
Flexible Budget for Unit Sales of
6,000
8,000
Sales …………………………..…..
$400
$2,400,000
$3,200,000
Variable costs
Direct materials ……………..
40
240,000
320,000
Direct labor ……………………
70
420,000
560,000
Indirect materials …………..
25
150,000
200,000
Sales commissions ………..
20
120,000
160,000
Shipping ……………………….
Fixed costs
Supervisor salary …………..
Administration salaries ….
Insurance ………………………
Office rent ……………………..
1298
Exercise 21-4 (25 minutes)
Note: Amounts shaded in table are solved.
Flexible Budget Performance Report
Flexible
Actual
For Month Ended June 30
Budget
(10,800 units)
Results
(10,800 units)
Variances
Sales (10,800 units) ………….
$864,000
$885,000
$21,000
F
F
$216,000
$249,000
F
Explanations:
Solve for amounts in the sales, variable costs, and fixed costs rows first. Then, compute
contribution margin and income subtotals, and all variances.
1299
Exercise 21-5 (25 minutes)
NINA COMPANY
Flexible Budget Performance Report
Flexible
Actual
For Month Ended July 31
Budget†
(7,200 units)
Results
(7,200 units)
Variances*
Sales ……………………………………………
Variable costs
$720,000
$737,000
$17,000
F
Direct materials …………………………
252,000
266,800
14,800
U
Direct labor ……………………………….
109,600
U
F
Sales commissions ……………………
F
Total variable costs ……………………
U
252,000
254,000
F
Fixed costs
Depreciation—Machinery …………..
68,200
68,200
0
Supervisory salaries ………………….
40,500
41,600
1,100
U
Insurance ………………………………….
Administrative salaries ………………
F
Total fixed costs ………………………..
F
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21
Exercise 21-6 (15 minutes)
LEWIS COMPANY
Flexible Budget Performance Report
Flexible
Actual
For Month Ended May 31
Budget†
(1,400 units)
Results
(1,400 units)
Variances
Sales …………………………..…..
$420,000
$435,000
$15,000
F
Variable costs ………………….
U
F
F
1,400 units x budgeted per unit amounts.
Exercise 21-7 (15 minutes)
1.
Inputs
Standard quantity
or hours
Standard price or
rate
Standard
cost per unit
Direct materials
2.0 pounds
$ 2.50 per pound
$ 5
$16.00 per DLH
Overhead
$12.00 per DLH
2. Total budgeted cost = Actual units produced x Standard cost per unit
= 12,000 units x $19 per unit
= $228,000
3.
Actual cost ……………………………………………………
$225,400
Budgeted (standard) cost ……………………………………………
Exercise 21-8 (10 minutes)
1.
Inputs
Standard quantity
or hours
Standard price
or rate
Standard
cost per unit
Direct materials
6 pounds
$ 8 per pound
$ 48
Direct labor
2 DLH
$16 per DLH
32
Overhead
2 DLH
$12 per DLH
24
Total
$104
Budgeted (standard) cost to produce actual activity:
Direct materials (8,000 x 6 lbs. x $8 per lb.) …………………………..
$384,000
Direct labor (8,000 x 2 hrs. x $16.00 per hr.) ………………………….
Overhead (8,000 x 2 direct labor hours x $12 per hr.) …………….
256,000
Budgeted (standard) cost to produce actual activity:
Direct materials (8,000 x 6 lbs. x $8 per lb.) …………………………..
$384,000
Overhead (8,000 x 2 direct labor hours x $12 per hr.) …………….
Direct materials (8,000 x 6 lbs. x $8 per lb.) ………………….
$384,000
Direct labor (8,000 x 2 hrs. x $16.00 per hr.) ………………………….
256,000
3. Actual costs—to produce 8,000 during the month:
Direct materials (48,500 x $8.10) ………………………………….
$392,850
Direct labor (15,700 x $16.50) ………………………………………
Overhead ……………………………………………………………………
4. Total cost variance:
Actual cost ……………………………………………………….………..
$849,900
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21
Exercise 21-9 (15 minutes)
1. Direct materials price variance:
Actual quantity and actual price (48,500 x $8.10) …………
$392,850
Actual quantity and standard price (48,500 x $8.00) ……..
2. Direct materials quantity variance:
Actual quantity and standard price (48,500 x $8.00) ……..
$388,000
Exercise 21–10 (15 minutes)
1. Direct labor rate variance:
Actual hours and actual rate (15,700 x $16.50) …………….
$259,050
Actual hours and standard rate (15,700 x $16.00) …………
2. Direct labor efficiency variance:
Actual hours and standard rate (15,700 x $16.00) …………
$251,200
Standard hours and standard rate (16,000* x $16.00) ……
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21
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Exercise 21-11 (25 minutes)
1.
Direct materials price variance:
Actual quantity and actual price (138,000 x $3.75) …………………
$517,500
Actual quantity and standard price (138,000 x $4.00) …………….
552,000
Actual quantity and standard price (138,000 x $4.00) …………….
$552,000
540,000
$ 12,000
2.
Direct labor rate variance:
Actual quantity and actual rate (31,000 x $15.10) …………………..
$468,100
Actual quantity and standard rate (31,000 x $15.00) ………………
465,000
Rate variance……………………………………………………………………….
$ 3,100
U
Actual quantity and standard rate (31,000 x $15.00) ………………
$465,000
405,000
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21
Exercise 21-12 (25 minutes)
1.
Direct materials price variance:
Actual quantity and actual price (92,000 x $2.95) …………………..
$271,400
Actual quantity and standard price (92,000 x $3.00) ………………
Price variance………………………………………………………………………
F
Actual quantity and standard price (92,000 x $3.00) ………………
$276,000
U
2.
Direct labor rate variance:
Actual quantity and actual rate (18,800 x $12.05) …………………..
$226,540
Actual quantity and standard rate (18,800 x $12.00) ………………
Rate variance……………………………………………………………………….
U
Actual quantity and standard rate (18,800 x $12.00) ………………
$225,600
Standard quantity and standard rate (18,000** x $12.00) ………..
Efficiency variance ………………………………………………………………
U
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21
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Exercise 21–13 (30 minutes)
1. Preliminary computations
Actual quantity: 22,000 pounds (lbs.) (given)
Standard quantity: 3,000 units x 8 lbs./unit = 24,000 lbs.
Actual price: $266,200/22,000 lbs. = $12.10/lb.
Standard price: $12.00/lb. (given)
Direct material cost variances
Price and Quantity variances
Actual Cost
AQ x AP
AQ x SP
Standard Cost
SQ x SP
Alternate solution format
Price variance
= AQ x (AP – SP)
= 22,000 lbs. x ($12.10 – $12.00)
= $2,200 U
Quantity variance
= (AQ – SQ) x SP
= (22,000 – 24,000) lbs. x $12.00/lb.
= $24,000 F
Price variance ………….
Quantity variance ……..
Total variance …………..
2. The quantity variance is more than 5% of actual direct material cost and
thus it will be investigated further. ($24,000/$266,200 = 9.02%).
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 21
Exercise 21–14A (25 minutes)
Work in Process Inventory …………………………………….
288,000
Direct Materials Price Variance* …………………………..…
Exercise 21-15 (25 minutes)
1.
Direct materials price variance:
Actual quantity and actual price (16,000 x $4.05) …………………..
$ 64,800
Actual quantity and standard price (16,000 x $4.00) ………………
Price variance………………………………………………………………………
U
Actual quantity and standard price (16,000 x $4.00) ………………
$ 64,000
Standard quantity and standard price (15,000* x $4.00) …………
U
2.
Direct labor rate variance:
Actual quantity and actual rate (16,635 x $19.00) …………………..
$316,065
Actual quantity and standard rate (16,635 x $20.00) ………………
Actual quantity and standard rate (16,635 x $20.00) ………………
$332,700
Standard quantity and standard rate (15,000** x $20.00) ………..