Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 21
Chapter 21
Flexible Budgets and Standard Costs
QUESTIONS
1. Fixed budget performance reports have limited usefulness because they do not
2. The primary purpose of a flexible budget is to help managers better evaluate past
performance, which can improve their abilities to monitor and control operations.
3. The proper title is:
Spalding Company
4. A flexible budget performance report is useful for an analysis of the difference
5. A variable cost implies a constant per unit cost for each unit produced or sold within
the relevant range.
6. The human resource department is usually responsible for a labor rate variance.
The production department is usually responsible for a labor efficiency variance.
7. A price variance is that portion of a cost variance caused by a difference between
the actual unit price of an item and its standard price. A quantity variance is that
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 21
1248
8. Standard costs are used to establish a basis to assess the reasonableness of actual
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
10. A predetermined standard overhead rate is a measure computed and used in a
standard cost system to assign overhead costs to products. Before the period
11. In general, variance analysis is said to provide information about price and quantity
variances.
12. 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
13. Standard costs provide a basis for evaluating actual performance. Summary
information comparing actual costs to budgeted costs is captured and reported in a
14. 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
15. Apple schedules appointments with customers to service Apple computers,
iPhones, iPods etc. 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.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 21
16. 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 controllable variance will arise only if the actual overhead cost is different from the
17. Positive features of standard cost systems include: Provides benchmarks to be
used in management by exception; motivates employees to work towards goals;
18. 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 performance is close enough to the standard to be satisfactory. This
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
Fixed costs ………………………………….
Quick Study 21-2 (5 minutes)
Quick Study 21-3 (10 minutes)
From the flexible budget at 20,000 units, compute the sales price and variable
costs per unit:
Quick Study 21-4 (10 minutes)
BRODRICK COMPANY
Flexible Budget Performance Report
For Year Ended December 31
Flexible
Actual
Budget
Results
Variances
Sales (26,000 units) …………………….
$520,000
$480,000
$40,000
U
U
Quick Study 21-5 (5 minutes)
A standard cost card for one bat would include:
Quick Study 21-6 (5 minutes)
$40
1252
Quick Study 21-7 (10 minutes)
Quick Study 21-8 (10 minutes)
Direct materials price variance:
Direct materials quantity variance:
1253
Quick Study 21-9 (15 minutes)
Following information is given:
$ 78.00
Quick Study 21–10 (10 minutes)
$150,000
Quick Study 21–11 (10 minutes)
Direct labor rate variance:
$975,000
$ 65,000
$910,000
$ 28,000
Quick Study 21–12 (10 minutes)
$400,000
U
Quick Study 21-13 (10 minutes)
$262,800
Quick Study 21-14 (10 minutes)
$ 28,175
40,180
$(12,005)
F
F
Quick Study 21–15 (5 minutes)
$12,000
Quick Study 21–16 (10 minutes)
Standard overhead cost …………………………..……………………………………….
$225,000
Overhead volume variance ………………………………………………………………..
F
Actual total overhead cost ………………………………………………………………..
$265,400
Quick Study 21–17A (10 minutes)
Work in Process Inventory ………………………………………………
225,000
265,400
Quick Study 21–18 (10 minutes)
Actual overhead (4,700 x $4.15)*……………………………………………………….
$19,505
Total overhead cost variance ……………………………………………………….
Quick Study 21-19A (15 minutes)
Variable overhead spending and efficiency variances
Actual Overhead
Applied Overhead
(4,700 x $4.15)
Quick Study 21-20 (15 minutes)
Sales
Actual
Flexible Budget
Fixed Budget
Units
50
50
45
Quick Study 21-21 (15 minutes)
Sales
Actual
Flexible Budget
Fixed Budget
Units
182,158
182,158
191,158
Quick Study 21-22 (5 minutes)
Quick Study 21-23 (10 minutes)
a. Standard overhead rate before sustainability improvement:
Quick Study 21-24 (5 minutes)
EXERCISES
Exercise 21-1 (5 minutes)
Following management by exception, this company will focus on those
Exercise 21-2 (20 minutes)
Item
Cost
a. Bike frames
Variable
b. Screws for assembly
Variable
e. Bike tires
Variable
Variable
1259
Exercise 21-3 (30 minutes)
1. Variable cost per unit = $177 (computed below)
TEMPO COMPANY
Flexible Budgets
For the First Quarter
Flexible Budget
Flexible
Flexible
Variable
Amount
per Unit*
Total
Fixed
Cost
Budget for
Unit Sales of
6,000
Budget for
Unit Sales
of 8,000
Sales …………………………..
$400.00
$2,400,000
$3,200,000
Variable costs
Direct materials ……………..
40.00
240,000
320,000
Production supplies ……….
25.00
150,000
200,000
Sales commissions ………..
Packaging ……………………..
Total variable costs ………..
Contribution margin ………..
$223.00
Fixed costs
Plant manager salary ……..
$ 65,000
65,000
65,000
Advertising ……………………
125,000
125,000
125,000
35,000
Insurance ………………………
20,000
Office rent ……………………..
36,000
36,000
36,000
Total fixed costs …………….
1260
Exercise 21-4 (25 minutes)
XION COMPANY
Flexible Budget Performance Report
For Month Ended June 30
Flexible
Actual
Budget
Results
Variances
Sales (10,800 units) …………………….
$864,000
$885,000
$ 21,000
F
Fixed expenses …………………………..
U
1261
Exercise 21-5 (25 minutes)
BAY CITY COMPANY
Flexible Budget Performance Report
For Month Ended July 31
Flexible
Actual
Budget
Results
Variances
Sales (7,200 units)……………………….
$720,000
$737,000
$17,000
F
Variable expenses ………………………
U
F
F
Supporting computations
Total fixed budget sales ……………………………………………………..
$ 750,000
Total units budgeted ……………………………………………………….
÷ 7,500
Budgeted selling price ……………………………………………………….
$100 per unit
Flexible budget units ……………………………………………………….
× 7,200
Flexible budget sales ……………………………………………………….
$ 720,000
Total fixed budget variable expenses …………………………..
$ 487,500
Total units budgeted ……………………………………………………….
÷ 7,500
Budgeted variable expenses ………………………………………………
$ 65 per unit
Flexible budget units ……………………………………………………….
× 7,200
Flexible budget variable expenses …………………………..
$ 468,000
Total actual expenses ……………………………………………………….
$ 641,000
Less actual fixed expenses ………………………………………………..
Total actual variable expenses …………………………..
$ 483,000
Exercise 21-6 (15 minutes)
LEWIS CO.
Flexible Budget Performance Report
For Month Ended May 31
Flexible
Actual
Budget
Results
Variances
Sales (1,400 units)……………………….
$420,000
$435,000
$15,000
F
Variable expenses ………………………
U
F
Fixed expenses …………………………..
F
Exercise 21-7 (15 minutes)
1. Standard cost per unit:
2. Total budgeted cost = 12,000 units x $19 per unit = $228,000
3.
Actual manufacturing costs …………………………………………………….
$225,400
Exercise 21-8 (10 minutes)
(1) The standard cost for one unit is computed as:
$ 48
(2) Total cost variance
Actual costs incurred during the month:
$392,850
$849,900
$384,000
192,000
U
259,050
Exercise 21-9 (15 minutes)
Direct materials price variance:
$392,850
Actual quantity used x Standard price (48,500 x $8.00) ………………………
388,000
U
Actual quantity used x Standard price (48,500 x $8.00) ………………………
Standard quantity x Standard price (48,000 x $8.00) …………………………..
Direct materials quantity variance ……………………………………………………..
U
1264
Exercise 21–10 (15 minutes)
Direct labor rate variance:
$259,050
251,200
$251,200
256,000
Exercise 21-11 (25 minutes)
Part 1
Direct materials price variance:
$517,500
552,000
$ 34,500
F
$552,000
540,000
1265
Exercise 21–11 (continued)
Part 2 Direct labor rate variance:
$468,100
465,000
$465,000
405,000
$ 60,000
U
Exercise 21-12 (25 minutes)
Part 1 Direct materials price variance:
$271,400
276,000
$ 4,600
F
$276,000
U
Part 2 Direct labor rate variance:
$226,540
225,600
$ 940
U
$225,600
216,000
$ 9,600
U
1266
Exercise 21–13 (30 minutes)
1. Preliminary computations
Actual quantity: 22,000 bd. ft. (given)
Direct material cost variances
Actual units at actual cost [22,000 bd. ft. @ $12.10] …………………………..
$266,200
Price and quantity variances
Actual Cost
AQ x AP
AQ x SP
Standard Cost
SQ x SP
$2,200 U
Alternate solution format
Price variance
= AQ x (AP – SP)
= 22,000 board feet x ($12.10 – $12.00)
= $2,200 U
Quantity variance
= (AQ – SQ) x SP
= $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%).