EXERCISE 24-8
(a) RENSING GROOMERS
Flexible Budget
Activity level
Direct labor hours 550 600 700
Variable costs:
Grooming supplies ($5) $ 2,750 $ 3,000 $ 3,500
Direct labor ($14) 7,700 8,400 9,800
Overhead ($1) 550 600 700
(b) A flexible budget presents expected costs at various levels of produc–
tion volume, not just one, so that comparisons can be made between
actual costs and budgeted costs at the same volume. This allows the
(c) $21,000 ÷ 550 = $38.18
(d) Cost formula is $10,000 + $20(X), where (X) = direct labor hours
Total cost = $10,000 + ($20 X 650) = $23,000.
EXERCISE 24-9
(a) SORIA COMPANY
Selling Expense Flexible Budget Report
Clothing Department
For the Month Ended October 31, 2017
Difference
Sales in units
Variable expenses
Sales commissions ($.30)
Advertising expense ($.09)
Fixed expenses
Rent
Sales salaries
Budget
10,000
$ 3,000
900
1,500
1,200
Actual
10,000
$ 2,600
850
1,500
1,200
Favorable F
Unfavorable U
$ 400 F
50 F
0 U
0 U
(b) No, Joe should not have been reprimanded. As shown in the flexible
budget report, variable costs were $1,450 below budget.
EXERCISE 24–10
(a) CHUBBS INC.
Manufacturing Overhead Flexible Budget Report
For the Quarter Ended March 31, 2017
Difference
Budget
Actual
Favorable F
Unfavorable U
Variable costs
Indirect materials
Indirect labor
Utilities
$12,000
10,000
8,000
$13,500
9,500
8,700
$1,500 U
500 F
700 U
(b) CHUBBS INC.
Manufacturing Overhead Responsibility Report
For the Quarter Ended March 31, 2017
Difference
Controllable Costs
Budget
Actual
Favorable F
Unfavorable U
Indirect materials
Indirect labor
$12,000
10,000
$13,500
9,500
$1,500 U
500 F
EXERCISE 24–11
(a)
URLINK COMPANY
Home Internet Service Segment
Responsibility Report
For the Quarter Ended March 31, 2017
Budget
Actual
Difference
Favorable F
Unfavorable U
Service revenue
$25,000
$26,200
$1,200 F
Variable costs:
Material and supplies
1,600
1,200
400 F
Wages
3,000
3,250
250 U
Gas and oil
2,800
Total variable costs
7,400
Contribution margin
Controllable fixed costs:
9,000
9,500
500 U
4,000
1,500
Total controllable fixed costs
Controllable margin
$ 3,100
(b)
MEMO
TO: Lenny Kirkland
FROM: Student
SUBJECT: The Reporting Principles of Performance Reports
When evaluating the performance of a company’s segments, the performance
reports should:
1. Contain only data that are controllable by the segment’s manager.
EXERCISE 24–12
(a) Fabricating Department = $50,000 fixed costs plus total variable costs
of $2.00 per direct labor hour [($150,000 –
$50,000) ÷ 50,000].
(c)
$300
150
100
Total
Budgeted
Cost Line
250
200
EXERCISE 24–13
(a)
To Dallas Department Manager—Finishing Month: July
Controllable Costs:
Budget
Actual
Fav/Unfav
$175,200
Direct Materials
Direct Labor
$ 44,000
82,000
$ 42,500
83,400
$1,500 F
1,400 U
(b)
To Assembly Plant Manager—Dallas Month: July
Controllable Costs:
Budget
Actual
Fav/Unfav
Dallas Office
Departments:
Machining
Finishing
Total
$ 92,000
219,000
175,200
$486,200
$ 95,000
220,000
176,900
$491,900
$3,000 U
1,000 U
1,700 U
$5,700 U
(c)
To Vice President—Production Month: July
Controllable Costs:
Budget
Actual
Fav/Unfav
V P Production
Assembly plants:
Atlanta
$ 130,000
420,000
$ 132,000
424,000
$2,000 U
4,000 U
EXERCISE 24–14
(a) MALONE COMPANY
Mixing Department
Responsibility Report
For the Month Ended January 31, 2017
Controllable Cost
Budget
Actual
Difference
Indirect labor
Indirect materials
$12,000
7,700
$12,250
10,200
$ 250 UU
2,500 U
(b) Most likely, when management examined the responsibility report for
January, they would determine that the differences were insignificant
for indirect labor (2.1% of budget), lubricants (1.5%), and maintenance
EXERCISE 24–15
(a) 1. Controllable margin ($270,000 – $100,000) $170,000
2. Variable costs ($600,000 – $270,000) 330,000
3. Contribution margin ($450,000 – $320,000) 130,000
EXERCISE 24-15 (Continued)
(b) HORATIO INC.
Women’s Shoe Division
Responsibility Report
For the Month Ended June 30, 2017
Difference
Budget
Actual
Favorable F
Unfavorable U
Sales
Variable costs
$600,000
325,000
$600,000
330,000
$ 0 U
5,000 U
EXERCISE 24–16
(a) HARRINGTON COMPANY
Sports Equipment Division
Responsibility Report
2017
Budget
Actual
Difference
Sales
$900,000
$880,000
$20,000 U
Variable costs
Cost of goods sold
440,000
408,000
32,000 F
Selling and administrative
60,000
61,000
1,000 U
Total
500,000
469,000
31,000 F
Contribution margin
400,000
411,000
24,000 F
Controllable margin
$30,000 F
EXERCISE 24–17
(a) Controllable margin = ($3,000,000 – $1,950,000 – $600,000) = $450,000
ROI = $450,000 ÷ $5,000,000 = 9%
EXERCISE 24–18
(a)
DINKLE AND FRIZELL DENTAL CLINIC
Preventive Services
Responsibility Report
For the Month Ended May 31, 2017
Budget
Actual
Difference
Favorable F
Unfavorable U
Service revenue
$39,000
$40,000
$1,000 F
Variable costs
Filling materials
4,900
5,000
100 U
Novocain
3,800
3,900
100 U
Dental assistant wages
2,500
2,500
0
Supplies
2,250
1,900
Utilities
390
500
110 U
Total variable costs
40 F
Contribution margin
Controllable fixed costs
Dentist salary
9,400
400 U
Equipment depreciation
6,000
6,000
0
Controllable margin
$ 9,760
$10,400
$ 640 F
Return on investment*
12.2%
13.0%
0.8% F
*Average investment = ($82,400 + $77,600) ÷ 2 = $80,000
EXERCISE 24-18 (Continued)
(b)
MEMO
TO: Drs. Reese Dinkle and Anita Frizell
FROM: Student
SUBJECT: Deficiencies in the Current Responsibility Reporting System
The current reporting system has the following deficiencies:
1. It does not clearly show both budgeted goals and actual performance.
2. It does not indicate the contribution margin generated by the center,
showing the amount available to go towards covering controllable
EXERCISE 24–19
Planes:
ROI = Controllable margin ÷ Average operating assets
12% = Controllable margin ÷ $25,000,000
Controllable margin = $25,000,000 X 12%
Taxis:
ROI
=
Controllable margin
÷
Average operating assets
10%
=
$80,000
÷
Average operating assets
Average operating assets
$80,000 ÷ 10%
Controllable margin
=
Contribution margin
–
Controllable fixed costs
$250,000 – $80,000
=
$500,000 – Variable costs
=
$250,000
=
Service revenue – Variable costs
EXERCISE 24-19 (Continued)
Limos:
ROI = Controllable margin ÷ Average operating assets
= $210,000 ÷ $1,500,000
= 14%
SOLUTIONS TO PROBLEMS
PROBLEM 24–1A
(a) BUMBLEBEE COMPANY
Packaging Department
Monthly Manufacturing Overhead Flexible Budget
For the Year 2017
Activity level
Direct labor hours
Variable costs
Indirect labor ($.42)*
Indirect materials ($.30)
Fixed costs
Supervision**
Depreciation
27,000
$11,340
8,100
8,000
6,000
2,500
30,000
$12,600
9,000
8,000
6,000
2,500
33,000
$13,860
9,900
8,000
6,000
2,500
36,000
$15,120
10,800
8,000
6,000
2,500
PROBLEM 24-1A (Continued)
(b) BUMBLEBEE COMPANY
Packaging Department
Manufacturing Overhead Flexible Budget Report
For the Month Ended October 31, 2017
Difference
Direct labor hours (DLH)
Variable costs
Indirect labor
Fixed costs
Supervision
Depreciation
Insurance
Budget at
27,000 DLH
$11,340
8,000
6,000
2,500
Actual Costs
27,000 DLH
$12,432
8,000
6,000
2,460
Favorable F
Unfavorable U
$1,092 U
0 U
0 U
40 F
(c) The overall performance of management was slightly unfavorable.
PROBLEM 24–2A
(a) ZELMER COMPANY
Monthly Manufacturing Overhead Flexible Budget
Ironing Department
For the Year 2017
Activity level
Direct labor hours
Variable costs
Indirect labor ($.40)
Indirect materials ($.50)
Factory utilities ($.30)
35,000
$14,000
17,500
10,500
40,000
$16,000
20,000
12,000
45,000
$18,000
22,500
13,500
50,000
$20,000
25,000
15,000
PROBLEM 24-2A (Continued)
(b) ZELMER COMPANY
Ironing Department
Manufacturing Overhead Flexible Budget Report
For the Month Ended June 30, 2017
Difference
Direct labor hours (DLH)
Variable costs
Indirect labor
Indirect materials
Fixed costs
Supervision*
Depreciation
Insurance
Budget at
41,000 DLH
$16,400 (1)
20,500 (2)
4,000
1,500
1,000
Actual Costs
41,000 DLH
$18,040 (5)
19,680 (6)
4,000
1,500
1,000
Favorable F
Unfavorable U
$1,640 U
820 F
0 U
0 U
0 U
(c) The manager was ineffective in controlling variable costs ($3,690 U).
Fixed costs were effectively controlled.
PROBLEM 24-2A (Continued)
(e)
$80
Total
Budgeted
Cost Line
Costs in (000)
70
60
50
Budgeted
Variable
Costs
40
30
20
10
Budgeted
Fixed Costs
5
10
15
20
25
30
35
40
45
50
Direct Labor Hours in (000)
PROBLEM 24–3A
(b) RATCHET COMPANY
Assembling Department
Flexible Budget Report
For the Month Ended August 31, 2017
Difference
Units
Variable costs*
Direct materials ($.80 X 58,000)
Direct labor ($.90 X 58,000)
Indirect materials ($.40 X 58,000)
Fixed costs
Rent
Supervision
Budget at
58,000 Units
$ 46,400
52,200
23,200
12,000
17,000
Actual Costs
58,000 Units
$ 47,000
51,200
24,200
12,000
17,000
Favorable F
Unfavorable U
$ 600 U
1,000 F
1,000 U
0 U
0 U
*Note that the per unit variable costs are computed by taking the
budget amount at 60,000 units and dividing it by 60,000. For example,
PROBLEM 24-3A (Continued)
(c) RATCHET COMPANY
Assembling Department
Flexible Budget Report
For the Month Ended September 30, 2017
Difference
Units
Variable costs
Direct materials (.80 X 64,000)
Direct labor ($.90 X 64,000)
Indirect materials ($.40 X 64,000)
Indirect labor ($.30 X 64,000)
Budget at
64,000 Units
$ 51,200
57,600
25,600
19,200
Actual Costs
64,000 Units
$ 51,700
56,320
26,620
19,250
Favorable F
Unfavorable U
$ 500 U
1,280 F
1,020 U
50 U
The manager’s performance was slightly better in September than it
was in August. However, each variable cost was slightly over budget
again except for direct labor.
Note that actual variable costs in September were 10% higher than
the actual variable costs in August. Therefore to find the actual vari-
able costs in September, the actual variable costs in August must be
increased 10% as follows:
August
(actual)
September
(actual)
Direct materials
Direct labor
$ 47,000 X 110%
51,200 X 110%
=
$ 51,700
56,320
PROBLEM 24–4A
(a) CLARKE INC.
Patio Furniture Division
Responsibility Report
For the Year Ended December 31, 2017
Difference
Budget
Actual
Favorable F
Unfavorable U
Sales
$2,500,000
$2,550,000
$50,000 F
(b) The manager effectively controlled revenues and costs. Contribution
margin was $85,000 favorable and controllable margin was $80,000
favorable. Contribution margin was favorable primarily because sales
were $50,000 over budget and variable cost of goods sold was $41,000
(c) Two costs are excluded from the report: (1) noncontrollable fixed costs
and (2) indirect fixed costs. The reason is that neither cost is control-
lable by the Patio Furniture Division Manager.