CHAPTER 24
SOLUTIONS TO EXERCISES—SET B
EXERCISE 24-1B
(a) MONICA COMPANY
Selling Expense Report
For March
By Month
Year–to–Date
Month
Budget
Actual
Difference
Actual
Difference
January
$31,000
$29,000
$2,000 F
$ 29,000
$2,000 F
February
$38,500
$1,500 U
$ 67,500
March
$37,000
$8,000 F
$104,500
$8,500 F
(b) The purpose of the Selling Expense Report is to help management
control selling expenses. The primary recipient is the sales manager.
(c) Most likely, when management scrutinized the results for January and
February, they would determine that the difference was fairly
EXERCISE 24-2B
CUBAN COMPANY
Monthly Flexible Manufacturing Overhead Budget
For the Year 2017
Activity level
Direct labor hours
Variable costs
Indirect labor ($.70)
Indirect materials ($.50)
7,000
$ 4,900
3,500
8,000
$ 5,600
4,000
9,000
$ 6,300
4,500
10,000
$ 7,000
5,000
EXERCISE 24-3B
(a) CUBAN COMPANY
Manufacturing Overhead Budget Report (Flexible)
For the Month Ended July 31, 2017
Difference
Direct labor hours (DLH)
Variable costs
Indirect labor ($.70)
Indirect materials ($.50)
Budget at
9,000 DLH
$ 6,300
4,500
Actual Costs
9,000 DLH
$ 6,100
4,300
Favorable F
Unfavorable U
$200 F
200 F
(b) CUBAN COMPANY
Manufacturing Overhead Budget Report (Flexible)
For the Month Ended July 31, 2017
Difference
Direct labor hours (DLH)
Variable costs
Indirect labor ($.70)
Indirect materials ($.50)
Budget at
8,500 DLH
$ 5,950
4,250
Actual Costs
8,500 DLH
$ 6,100
4,300
Favorable F
Unfavorable U
$150 U
50 U
(c) In case (a) the performance for the month was satisfactory. In case
(b) management may need to determine the causes of the unfavorable
EXERCISE 24-4B
PARADISE COMPANY
Monthly Flexible Selling Expense Budget
For the Year 2017
Activity level
Sales
Variable expenses
Sales commissions (6%)
Advertising (4%)
$170,000
$ 10,200
6,800
$180,000
$ 10,800
7,200
$190,000
$ 11,400
7,600
$200,000
$ 12,000
8,000
EXERCISE 24-5B
(a) PARADISE COMPANY
Selling Expense Budget Report (Flexible)
For the Month Ended March 31, 2017
Difference
Sales
Variable expenses
Sales commissions
Advertising
Budget
$170,000
$ 10,200
6,800
Actual
$170,000
$ 11,000
7,000
Favorable F
Unfavorable U
$ 800 U
200 U
EXERCISE 24-5B (Continued)
(b) PARADISE COMPANY
Selling Expense Budget Report (Flexible)
For the Month Ended March 31, 2017
Difference
Sales
Variable expenses
Sales commissions
Advertising
Travel
Delivery
Total variable
Budget
$180,000
$ 10,800
7,200
5,400
3,600
Actual
$180,000
$ 11,000
7,000
5,100
3,500
Favorable F
Unfavorable U
$200 U
200 F
300 F
100 F
(c) Flexible budgets are essential in evaluating a manager’s performance in
controlling variable expenses because the budget allowance varies
EXERCISE 24-6B
(a) REDSTONE INC.
Flexible Production Cost Budget
Activity level
Production levels 80,000 90,000 100,000
Variable costs:
Manufacturing ($6) $ 480,000 $ 540,000 $ 600,000
Administrative ($3) 240,000 270,000 300,000
(b) $200,000 profit before taxes calculation in units:
Let (X) represent number of units
EXERCISE 24-7B
(a) MARKET GROOMERS
Flexible Budget
Activity level
Direct labor hours 500 600 700
Variable costs:
Grooming supplies ($5.00) $ 2,500 $ 3,000 $ 3,500
Direct labor ($10.00) 5,000 6,000 7,000
(b) A flexible budget presents expected costs at various levels of production
volume, not just one, so that comparisons can be made between actual
costs and budgeted costs at the same volume. This allows the person to
(c) $18,500 ÷ 500 = $37.00
$20,200 ÷ 600 = $33.67
$21,900 ÷ 700 = $31.29
(d) Cost formula is $10,000 + [$17.00(X)], where (X) = direct labor hours
EXERCISE 24-8B
(a) HARMON COMPANY
Selling Expense Budget Report (Flexible)
Clothing Department
For the Month Ended October 31, 2017
Difference
Sales in units
Variable expenses
Sales commissions ($.25)
Advertising expense ($.10)
Budget
10,000
$ 2,500
1,000
Actual
10,000
$ 2,700
900
Favorable F
Unfavorable U
$200 U
100 F
EXERCISE 24-9B
(a) SOPHIA COMPANY
Manufacturing Overhead Budget Report (Flexible)
For the Quarter Ended March 31, 2017
Difference
Budget
Actual
Favorable F
Unfavorable U
Variable costs
Indirect materials
$13,000
$16,000
$3,000 U
(b) SOPHIA COMPANY
Manufacturing Overhead Responsibility Report
For the Quarter Ended March 31, 2017
Difference
Controllable Costs
Budget
Actual
Favorable F
Unfavorable U
Indirect materials
Indirect labor
$13,000
10,000
$16,000
9,700
$3,000 U
300 F
*Includes variable and fixed costs
EXERCISE 24-10B
(a)
MEEKS PLUMBING COMPANY
Home Plumbing Services Segment
Responsibility Report
For the Quarter Ended March 31, 2017
Budget
Actual
Difference
Favorable F
Unfavorable U
Service revenue
$30,000
$31,500
$1,500 F
Variable costs:
Material and supplies
1,500
1,300
200 F
Wages
4,000
4,200
200 U
Gas and oil
2,700
3,400
700 U
Total variable costs
8,200
8,900
Contribution margin
Controllable fixed costs:
4,000
3,300
1,600
1,300
Total controllable fixed costs
500 F
Controllable margin
$ 6,200
$ 7,500
(b)
MEMO
TO: Karen Meeks
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.
2. Provide accurate and reliable budget data to measure performance.
EXERCISE 24-11B
(a) Fabricating Department = $50,000 fixed costs plus total variable costs of
$2.60 per direct labor hour [($180,000 –
$50,000) ÷ 50,000].
(c)
$300
Total
Budgeted
Cost Line
250
200
Budgeted
Variable
Costs
150
100
EXERCISE 24-12B
(a)
To Detroit Department Manager—Finishing Month: July
Controllable Costs:
Budget
Actual
Fav/Unfav
Direct Materials
Direct Labor
$ 55,000
82,000
$ 51,700
83,000
$3,300 F
1,000 U
(b)
To Assembly Plant Manager—Detroit Month: July
Controllable Costs:
Budget
Actual
Fav/Unfav
Detroit Office
$ 87,500
$ 90,000
$2,500 U
(c)
To Vice President—Production Month: July
Controllable Costs:
Budget
Actual
Fav/Unfav
V P Production
Assembly plants:
$ 160,000
$ 165,000
$5,000 U
EXERCISE 24-13B
(a) STARLIGHT COMPANY
Mixing Department
Responsibility Report
For the Month Ended January 31, 2017
Controllable Cost
Budget
Actual
Difference
Indirect labor
Indirect materials
$11,100
7,500
$11,900
9,300
$ 800 UU
1,800 U
(b) Most likely, when management examined the responsibility report for
January, they would determine that the difference was insignificant for
indirect labor (7.2% of budget), lubricants (3%), and maintenance (0%)
and require no action. However, the differences for indirect materials (24%),
EXERCISE 24-14B
(a) (1) Controllable margin ($260,000 – $100,000) $160,000
(2) Variable costs ($600,000 – $260,000) 340,000
EXERCISE 24-14B (Continued)
(b) BROGAN MANUFACTURING 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
335,000
$600,000
340,000
$ 0 U
5,000 U
EXERCISE 24-15B
(a) SWENSON COMPANY
Sports Equipment Division
Responsibility Report
For the Year Ended December 31, 2017
Budget
Actual
Difference
Sales
$900,000
$870,000
$30,000 U
Variable costs
Cost of goods sold
440,000
405,000
35,000 F
Selling and administrative
60,000
62,000
2,000 U
Total
Contribution margin
403,000
3,000 F
100,000
105,000
78,000
7,000 F
Controllable margin
$220,000
$10,000 F
EXERCISE 24-16B
(a) Controllable margin = ($3,200,000 – $2,500,000 – $400,000) = $300,000
ROI = $300,000 ÷ $5,000,000 = 6%
(b) (1) Contribution margin percentage is 21.88%, or ($700,000 ÷ $3,200,000)
Increase in controllable margin = $450,000 X 21.88% = $98,460
ROI = ($300,000 + $98,460) ÷ $5,000,000 = 8%
EXERCISE 24-17B
(a)
MEND AND DONNER DENTAL CLINIC
Preventive Services
Responsibility Report
For the Month Ended May 31, 2017
Budget
Actual
Difference
Favorable F
Unfavorable U
Service revenue
$43,000
$45,000
$2,000 F
Variable costs
Filling materials
6,700
7,000
300 U
Novocain
3,800
4,000
200 U
Dental assistant wages
2,500
2,500
0
Supplies
2,250
2,000
250 F
Utilities
450
500
50 U
Total variable costs
300 U
Contribution margin
Controllable fixed costs
Dentist salary
11,400
12,000
600 U
Equipment depreciation
6,000
6,000
Controllable margin
$ 9,900
$11,000
$1,100 F
Return on investment*
9.9%
11.0%
1.1% F
*Average investment = ($102,400 + $97,600) ÷ 2 = $100,000
Budget ROI = $9,900 ÷ $100,000
EXERCISE 24-17B (Continued)
(b)
MEMO
TO: Drs. Richard Mend and Tommy Donner
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
fixed costs.