Chapter 9 Homework the production department is a cost center that does not have

Exercise 9-17 (20 minutes)

Gelato Supremo

Revenue and Spending Variances

For the Month Ended July 31

Flexible

Budget

Actual

Results

Revenue and

Spending

Variances

Liters (q) ……………………………….

4,900

Revenue ($13.50q) ………………….

$66,150

$69,420

$3,270

F

Expenses:

Raw materials ($5.10q) ………….

24,990

26,890

1,900

U

Wages ($4,800 + $1.20q) ……….

10,680

11,200

520

U

Utilities ($1,860 + $0.15q) ………

125

F

Rent ($3,150) ………………………

3,150

Insurance($1,890) …………………

Miscellaneous ($540 + $0.15q) ..

U

Total expense …………………………

46,990

U

Net operating income ……………….

$21,570

$22,430

F

Exercise 9-18 (30 minutes)

AirAssurance Corporation

Flexible Budget Performance Report

For the Month Ended March 31

Planning

Budget

Activity

Variances

Flexible

Budget

Revenue

and

Spending

Variances

Actual

Results

Jobs (q) ………………………………………..

100

98

Revenue ($275.00q) ………………………..

$27,500

$550

U

$26,950

$2,200

U

$24,750

Expenses:

Technician wages ($8,600) ……………..

8,600

0

8,600

150

F

8,450

Office expenses ($2,700 + $3.00q) …..

3,000

6

F

2,994

144

F

2,850

U

Insurance ($2,870) ………………………..

2,870

0

2,870

0

2,870

F

691

F

Total expense …………………………………

F

Net operating income ……………………….

U

Mobile lab operating expenses

Exercise 9-19 (45 minutes)

1. The planning budget appears below. Note that the report does not

include revenue or net operating income because the production

department is a cost center that does not have any revenue.

Triway Packaging Corporation

Production Department Planning Budget

For the Month Ended November 30

Budgeted labor-hours (q) ………………………..

4,000

Direct labor ($16.30q) …………………………….

$ 65,200

Indirect labor ($4,300 + $1.80q) ……………….

Utilities ($5,600 + $0.70q) ……………………….

8,400

Supplies ($1,400 + $0.30q) ……………………..

Equipment depreciation ($18,600 + $2.80q) ..

Factory rent ($8,300) ……………………………..

8,300

Property taxes ($2,800) …………………………..

Factory administration ($13,400 + $0.90q) ….

Total expense ……………………………………….

2. The flexible budget appears below. Like the planning budget, this report

does not include revenue or net operating income because the

production department is a cost center that does not have any revenue.

Triway Packaging Corporation

Production Department Flexible Budget

For the Month Ended November 30

Actual labor-hours (q) …………………………….

3,800

Direct labor ($16.30q) …………………………….

$ 61,940

Indirect labor ($4,300 + $1.80q) ……………….

Supplies ($1,400 + $0.30q) ……………………..

Equipment depreciation ($18,600 + $2.80q) ..

Factory rent ($8,300) ……………………………..

8,300

Property taxes ($2,800) …………………………..

Factory administration ($13,400 + $0.90q) ….

Total expense ……………………………………….

Exercise 9-19 (continued)

3. The flexible budget performance report appears below. This report does not include revenue or net

operating income because the production department is a cost center that does not have any

revenue.

Triway Packaging Corporation

Production Department Flexible Budget Performance Report

For the Month Ended November 30

Planning

Budget

Activity

Variances

Flexible

Budget

Spending

Variances

Actual

Results

Labor-hours (q) ………………………….

4,000

3,800

Direct labor ($16.30q) ………………….

$ 65,200

$3,260

F

$ 61,940

$1,580

U

$ 63,520

Indirect labor ($4,300 + $1.80q) ……

11,500

360

F

11,140

460

F

10,680

Utilities ($5,600 + $0.70q)…………….

8,400

140

F

8,260

530

U

8,790

Supplies ($1,400 + $0.30q) …………..

F

U

29,800

560

F

29,240

Factory rent ($8,300) …………………..

U

Property taxes ($2,800) ………………..

2,800

17,000

F

16,230

Total expense …………………………….

F

U

Exercise 9-19 (continued)

4. The overall favorable activity variance of $4,560 occurred because the

actual level of activity was less than the budgeted level of activity.

Because of this decreased level of activity, some of the costs should

have been lower than budgeted. Consequently, calling this a favorable

Problem 9-20 (30 minutes)

1. The activity variances are shown below:

SecuriDoor Corporation

Activity Variances

For the Month Ended April 30

Planning

Budget

Flexible

Budget

Activity

Variances

Machine-hours (q) ……………………..

20,000

18,000

Utilities ($16,500 + $0.15q) …………

$ 19,500

$ 19,200

$ 300

F

Maintenance ($38,600 + $1.80q) ….

74,600

71,000

3,600

F

Supplies ($0.50q) ………………………

10,000

1,000

F

Indirect labor ($94,300 + $1.20q) …

F

Depreciation ($68,000) ……………….

Total ……………………………………….

$283,100

F

Problem 9-20 (continued)

2. The spending variances are computed below:

SecuriDoor Corporation

Spending Variances

For the Month Ended April 30

Flexible

Budget

Actual

Results

Spending

Variances

Machine-hours (q) ……………………..

18,000

Utilities ($16,500 + $0.15q) …………

$ 19,200

$ 21,300

$2,100

U

Maintenance ($38,600 + $1.80q) ….

71,000

68,400

F

Supplies ($0.50q) ………………………

U

Indirect labor ($94,300 + $1.20q) …

U

Depreciation ($68,000) ……………….

1,700

U

Total ……………………………………….

$288,400

U

Problem 9-21 (30 minutes)

1.

Verona Pizza

Flexible Budget Performance Report

For the Month Ended October 31

Planning

Budget

Activity

Variances

Flexible

Budget

Spending

Variances

Actual

Results

Pizzas (q1) ………………………………..

1,500

1,600

Deliveries (q2) …………………………...

200

180

Revenue ($13.00q1) ……………………

$19,500

$1,300

F

$20,800

$540

F

$21,340

Expenses:

Pizza ingredients ($4.20q1) …………

6,300

420

U

6,720

130

U

6,850

F

Utilities ($590 + $0.10q1) …………..

740

U

750

125

U

875

Delivery person ($2.90q2)…………..

580

F

522

F

U

Equipment depreciation ($384) ……

384

Rent ($1,790) ………………………….

1,790

U

F

Total expense …………………………...

17,319

U

17,670

U

17,991

Net operating income ………………….

$ 2,181

F

$ 3,130

F

$ 3,349

Problem 9-21 (continued)

2. Some of the activity variances are favorable and some are unfavorable.

This occurs because there are two cost drivers (i.e., measures of

activity) and one is up and the other is down. The actual number of

pizzas delivered is greater than budgeted, so the activity variance for

1. Performance should be evaluated using a flexible budget performance report. In this case, the report

will not include revenues.

KGV Blood Bank

Flexible Budget Performance Report

For the Month Ended September 30

Planning

Budget

Activity

Variances

Flexible

Budget

Spending

Variances

Actual

Results

Liters of blood collected (q) …………….

600

780

Medical supplies ($11.85q) ……………..

$ 7,110

$2,133

U

$ 9,243

$ 9

U

$ 9,252

Lab tests ($14.35q) ……………………….

8,610

2,583

U

11,193

411

F

10,782

Equipment depreciation ($1,900) ……..

U

Rent ($1,500) ………………………………

Utilities ($300) ……………………………..

300

24

U

324

Administration ($13,200 + $1.85q)……

14,310

333

U

14,643

68

F

14,575

Total expense ………………………………

$33,730

$5,049

U

F

2. The overall unfavorable activity variance of $5,049 was caused by the 30% increase in activity. There

is no reason to investigate this particular variance. The overall spending variance is $246 F, which

would seem to indicate that costs were well-controlled. However, the favorable $411 spending

variance for lab tests is curious. The fact that this variance is favorable indicates that less was spent

Problem 9-23 (45 minutes)

1. The cost reports are of little use for assessing how well costs were

controlled. The problem is that the company is comparing budgeted

costs at one level of activity to actual costs at another level of activity.

2. The company should use a flexible budget approach to evaluate cost

control. Under the flexible budget approach, the actual costs incurred in

working 25,000 machine-hours are compared to what the costs should

have been for that level of activity.

3. See the following page.

4. The flexible budget performance report provides a much clearer picture

of the performance of the Assembly Department than the original cost

control report prepared by the company. The overall activity variance is