ASSIGNMENT: FLEXIBLE BUDGETS, DIRECT COST VARIANCES, AND MANAGEMENT

CONTROL

NAME: Mary Ann F. Mendez

INSTRUCTION: Please answer the following exercises and problems (EXERCISE 18- 22 & 29,
AND PROBLEMS 30, 36 & 39) that will be found in the PDF that was given to you under
“LECTURES: THE MANAGER AND MANAGEMENT ACCOUNTING”. Put your answers on the
answer sheet provided below. If there are problems that are computational in nature, please
show your solutions. Thank you.

EXERCISE 7-18: ANSWERS (15 POINTS)

1. Static budget-based variance analysis

  Actual Results Static Budget Variance Static Budget

Unit sold      12,000               3000 U                                      15,000

Revenue 252,000             48,000 U                                     300,000

Variable Costs    84,000                               36,000 F                                      120,000

Contribution Margin   168,000                               12,000 U                                     180,000  

Fixed Costs   150,000                                 5,000 U                                       145,000

Operating Income     18,000 17,000 U                                       35,000

17,000 U

Static Budget Variance

Solution:

Actual Results
Revenues: 12,000 x $21 = $252 000
Variable Costs: $7 x 12,000 = $ 84,000
Contribution Margin: $252,000 - $84,000 = $168,000
Operating Income: $168,000 - $150,000 = $18,000
Static Budget
Revenues: 15,000 x $20 = $300,000
Variable Costs: $8 x 15,000 = $120,000
Contribution Margin: $300,000 - $120,000 = $180,000
Operating Income: $180,000 - $145,000 = $35,000
Static-budget Variance = $35,000 - $18,000 = $17,000

2. Flexible Budget Variance Analysis

Actual Results Flexible Flexible Sales-Volume Static Budget

Budget Variance Budget Variance

Unit sold         12,000 0 12,000 3000 15,000

Revenues    252,000 12,000 240,000 60,000 300,000

Variable Costs    84,000 12,000 96,000 24,000 120,000

Contribution Margin 168,000 24,000 144,000 36,000 180,000   

Fixed Costs 150,000 5,000 145,000 0 145,000

$19,000 $36,000

Flexible Budget Variance Sales-Volume Variance

$17,000

Total Static Budget Variance

Solution:

Flexible Budget = Actual quantity x Budgeted price

Revenues = 12,000 x $20 = $240,000
Variable costs = 12,000 x $8 = $96,000
Contribution Margin = $240,000 - $96,000 = $144,000
Operating Income = $144,000 - $145,000 = (1,000)

Flexible Budget Variance = Actual Results – Flexible Budget

Units Sold = 12,000 – 12,000 = 0
Revenues = $252,000 - $240,000 = $12,000
Variable costs = $84,000 - $96,000 = $ (12,000)
Contribution Margin = $168,000 - $144,000 = $24,000
Fixed Costs = $150,000 - $145,000 = $5,000
Operating income = $18,000 – (-1000) = $19,000

Sales Volume Variance = Flexible budget – Static Budget

Units sold = 12,000 – 15,000 = 3,000
Revenues = $300,000 - $240,000 = $60,000
Variable costs = $120,000 - $96,000 = $24,000
Contribution Margin = $180,000 - $144,000 = $36,000
Fixed costs = $145,000 - $145,000 = 0
Operating Income = $35,000 – (-1000) = $36,000

EXERCISE 7-19: ANSWERS (3 POINTS)

1.
Actual Flexible budget Flexible budget Sales-volume Static Budget
Results Variance Variance

Units Sold 130,000 0 130,000 10,000 120,000

Revenue 715,000 260,000 455,000 35,000 420,000

Variable costs 515,000 255,000 260,000 20,000 240,000

Contribution Margin 200,000 5,000 195,000 15,000 180,000

Fixed costs 140,000 20,000 120,000 0 120,000

Operating income 60,000 15,000 75,000 15,000 60,000

        

15,000 15,000

         Flexible budget variance Sales-volume variance

$0

Static budget variance

Solution:

Standard selling price = Static revenue ÷ Units sold

= $420,000 ÷ $120,000 = $3.5

Standard variable cost = Variable cost ÷ units sold

= $240,000 ÷ $120,000 = $2

Flexible budget

Revenues = 130,000 x $3.5 = $455,000

Variable costs = 130,000 x $2 =$260,000

Contribution margin = $455,000 - $260,000 = $195,000

Operating income = $195,000 - $120,000 = $75,000

Flexible budget variance

Unit sold = 130,000 – 130,000 = 0

Revenues = $715,000 - $455,000 = $260,000

Variable costs = $515,000 - $260,000 = $255,000

Contribution margin = $200,000 - $195,000 = $5,000

Fixed costs = $140,000 - $120,000 = $20,000

Operating income = $60,000 - $75,000 = $ (15,000)

Sales volume variance

Unit sold = 130,000 – 120,000 = 10,000

Revenue = $455,000 - $420,000 = $35,000

Variable costs = $260,000 - $240,000 = $20,000

Contribution margin = $195,000 - $180,000 = 15,000

Fixed costs = $120,000 - $120,000 = $0

Operating income = $75,000 - $60,000 = $15,000

Static budget variance = $60,000 - $60,000 = $0

= $15,000 - $15,000 = $0
 2. Actual selling price = $715,000 ÷ 130,000 = $5.5
Budgeted selling price = $420,000 ÷ 120,000 = 3.5
Actual variable costs = $515,000 ÷ 130,000 = $3.96
Budgeted variable costs = $240,000 ÷ 120,000 = $2

EXERCISE 7-20: ANSWERS (5 POINTS)

1. Static budget variance in units, revenues, variable manufacturing costs and

contribution margin

Actual Static budget variance Static budget

Units 355,000 10,000 345,000

Revenues $1,917,000 $36,750 $1,880,250

Variable manuf. costs $1,260,250 $52,750 1$1,207,500

Contribution margin $656,750 $16,000 $672,750

$16,000

Strategic budget variance

Solution:

Static budget variance

Units = 355,000 – 345,000 = 10,000

Revenues = $1,917,000 - $1,880,250 = $36,750

Variable manufacturing costs = $1,260,250 - $1,207,500 = $52,750

Contribution margin = $656,750 - $672,750 = $16,000

 2. Flexible-budget variance and sales-volume variance

Actual Results Flexible Flexible Sales-Volume Static Budget Static budget

Budget Variance Budget Variance variance %

Units    355,000 0 355,000 10,000 345,000    2.90%

Revenues   $1,917,000 $17,750 $1,934,750 $54,500 $1,880,250 1.95%

Variable Manuf. cost $1,260,250 $17,750 $1,242,500 $35,000 $1,207,500 4.37%

Contribution Margin $ 656,750 $35,500 $ 692,250 $19,500 $ 672,750 2.38%

$35,500 $19,500

Flexible Budget Variance Sales-Volume Variance

$16,000

Total Static Budget Variance

Solution: Flexible budget

Revenues = 355,000 x $5.45 = $1,934,750

Variable manuf. cost = 355,000 x $3.5 = $1,242,500

Contribution margin = $1,934,750 - $1,242,500 = $692,250

Flexible budget variance

Units sold = 355,000 – 355,000 = 0

Revenues = $1,917,000 - $1,934,750 = $ (17,750)

Variable manuf. cost = $1,260,250 - $1,242,500 = $17,750

Contribution margin = $656,750 - $692,250 = $ (35,500)

Sales-volume variance

Units sold = 355,000 – 345,000 = 10,000

Revenues = $1,934,750 - $1,880,000 = $54,500

Variable manuf. cost = $1,242,500 - $1,207,500 = $35,000

Contribution margin = $692,250 - $672,750 = $19,500

3. Selling price variance = (actual selling price – budgeted selling price) x Actual unit
sold

= (5.4 – 5.45) 355,000

= (0.05) 355,000
= $17,750

4. Budgeted market share = 345,000 ÷ 1,150,000 = 30%

Actual market share = 355,000 ÷ 1,109,375 = 32%

Actual market size x Actual market size x Static budget: Budgeted

actual market share x budgeted market share x market size x budget
budgeted contribution budgeted contribution market share x budget
margin per unit margin per unit contribution margin per
unit

$692,250 $648,984 $672,750

$43,266 $23,766

Market share Variance Market size Variance

$19,500
Sales volume variance

Solution:
 1,109,375 x 32% x $1.95 = $692,250
 1,109,375 x 30% x $1.95 = $648,984
 1,150,000 x 30% x $1.95 = $672,750

Market share variance = $692,250 - $648,984 = $43,266

Market size variance = $648,984 - $672,750 = $23,766

Sales volume variance = $43,266 - $23,766 = $19,500

EXERCISE 7-21: ANSWERS (3 POINTS)

         1.

Actual results Flexible budget variance Flexible budget

$13,120 $408 $13,528

 Solution:

Actual results = 16,000 x 0.82 = $13,120

Flexible budget = 60,800 x 0.25 x 0.89 = $13,528

Flexible budget variance = $13,120 - $13,528 = $408

2.

Actual cost incurred Actual input quantity x Flexible budget:

(actual input quantity x budgeted price (budgeted input quantity
actual price) allowed for actual output
x budgeted price

$13, 120 $14,240 $13,528

    

$1,120 $712

Price Variance Efficiency Variance

$408
Flexible budget variance

Solutions:

 16,000 x 0.89 = $14,240

 Price variance = $13,120 - $14,240 = $ (1,120)
 Efficiency variance = $14,240 – $13,528 = $712
 Flexible budget variance = $ (1,120) + $712 = $408
EXERCISE 7-22: ANSWERS (6 POINTS)

1.

Actual cost incurred Actual input quantity x Flexible budget:

(actual input quantity x budgeted price (budgeted input quantity
actual price) allowed for actual output
x budgeted price

Direct materials $200,000 $214,000 $225,000

    

$14,000 $11,000

Price Variance Efficiency Variance

$25,000
Flexible budget variance

Direct manuf. labor $ 90,000 $ 86,000 $ 80,000

    

$4,000 $6,000

Price Variance Efficiency Variance

$10,000
Flexible budget variance

Solution: Direct materials

 Price variance = $200,000 - $214,000 = $(14,000)

 Efficiency variance = $214,000 - $225,000 = $(11,000)
 Flexible budget variance = $(14,000) + $(11,000) = $(25,000)

Solution: Direct manufacturing labor

 Price variance = $90,000 - $86,000 = $4,000

 Efficiency variance = $86,000 - $80,000 = $6,000
 Flexible budget variance = $4,000 + $6,000 = $10,000
PROBLEM 7-29: ANSWERS (3 POINTS)

         1. Sales volume variance

Budgeted contribution margin per unit
= ($3,300,000 ÷ 220,000) x (1 – 64%)
= $5.40
Sales volume variance = budgeted contribution margin per unit x (actual units sold –
budgeted units sold)
= $5.40 x (230,550 – 220,000)
= $56,970

         2. Actual market share and market size variances

budgeted market share = 220,000 ÷ 4,400,000 = 5%

actual market share = 230,550 ÷ 4,350,000 = 5.30%

Actual market size x Actual market size x Static budget: Budgeted

actual market share x budgeted market share x market size x budget
budgeted contribution budgeted contribution market share x budget
margin per unit margin per unit contribution margin per
unit

$1,224,970 $1,174,500 $1,188,000

    

$70,740 $13,500

Market Share Variance Market Size Variance

$56,970
Sales volume variance

Solution:

 4,350,000 x 5.3% x $5.40 = $1,244,970

 4,350,000 x 5% x $5.40 = $1,174,500
 4,400,000 x 5% x $5.40 = $1,188,000

Market share variance = $1,244,970 - $1,174,500 = $70,470

Market size variance = $1,174,500 - $1,188,000 = $(13,500)

Sales volume variance = $70,740 + $(13,500) = $56,970

 3.

PROBLEM 7-30: ANSWERS (2 POINTS)

         1.

Actual Flexible budget Flexible budget Sales-volume Static Budget

Results Variance Variance

Units Sold 5,500 0 5,500 500 6,000

Direct materials $ 668,800 $ 8,800 $ 660,000 $60,000 $ 720,000

Direct manuf. labor 952,750 9,750 962,500 87,500 1,050,000

Fixed costs 1,180,000 20,000 1,200,000 0 1,200,000

Total costs $2,801,550 $20,950 $2,822,500 $147,500 $2,970,000

        

$20,950 $147,500

         Flexible budget variance Sales-volume variance

$168,450

Static budget variance

Solution: flexible budget

 Direct materials = 5,500 x $120 = 660,000

 Direct manufacturing labor = 5,500 x $175 = $962,500
 Total costs = $660,000 + $962,500 + $1,200,000 = $2,822,500

Solution: flexible budget variance

 Units sold = 5,500 – 5,500 = 0

 Direct materials = $668,800 - $660,000 = $8,800
 Direct manufacturing labor = $952,750 - $962,500 = $(9,750)
 Fixed costs = $1,180,000 - $1,200,000 = $(20,000)

Solution: sales volume variance

 Units sold = 5,500 – 6,000 = (500)

  Direct materials = $660,000 - $720,000 = $(60,000)
 Direct manufacturing labor = $962,500 - $1,050,000 = $(87,500)
 Fixed costs = $1,200,000 - $1,200,000 = 0
 Total costs = $(60,000) + $(87,500) = $(147,500)

Solution: static budget variance

 $(20,950) + $(147,500) = $168,450

2.

Actual cost incurred Actual input quantity x Flexible budget:

(actual input quantity x budgeted price (budgeted input quantity
actual price) allowed for actual output
x budgeted price

Direct materials $668,800 $704,000 $660,000

    

$35,200 $44,600

Price Variance Efficiency Variance

$8,800
Flexible budget variance

Direct manuf. labor $952,750 $925,000 $962,500

    

$27,750 $37,500

Price Variance Efficiency Variance

$9,750
Flexible budget variance

Solution: Direct materials

 70,400 x $9.5 = $668,800

 70,400 x $10 = $704,000
 5,500 x 12 x $10 = $660,000

Price variance = $668,800 - $704,000 = $(35,200)

Efficiency variance = $704,000 - $660,000 = 44,000

Flexible budget variance = $(35,200) + $44,000 = $8,800

Solution: Direct manufacturing labor

 18,500 x $51.50 = $952,750

 18,500 x $50 = $925,000
 5,500 x 3.5 x $50 = $962,500

Price variance = $952,750 - $925,000 = $27,750

Efficiency variance = $925,000 - $962,500 = $(37,500)

Flexible budget variance = $27,750 + $(37,500) = $ (9,750)

PROBLEM 7-36: ANSWERS (7 POINTS)

1. 4000 units x 0.5 hours = 2000 hours

2. Flexible budget – Efficiency variance = $40,000 – $2,000 = $38,000

Actual direct manuf. labor hours = $38,000 ÷ $20 = 1,900 hours

3. Actual direct manuf. labor cost = $38,000 + $1,900 = $39,900

Actual direct manufacturing labor rate = $39,000 ÷ 1,900 = $21 per hour

4. Standard quantity of direct materials = 4,000 × 3 = 12,000 pounds

5. Flexible budget + Direct materials efficiency variance

= $60,000 + $2,500 = $62,500
Actual quantity of direct materials used
= $62,500 ÷ ÷ $5 = 12,500 pounds

6. Actual cost of direct materials – Price variance,

$68,250 - $3,250 = $65,000
Actual quantity of direct materials purchased ÷ Budgeted price
= $65,000 ÷ $5 = 13,000 pounds

7. Actual direct materials price = $68,250 ÷ 13,000 = $5.25 per pound

PROBLEM 7-39: ANSWERS (8 POINTS)

For problems 1, 2, 3, 4 and 5

Actual Flexible budget Flexible budget Sales-volume Static Budget

Results Variance Variance

Units Sold 1, 425,000 0 1,425,500 75,000 1,500,000

Revenues $8,692,500 $142,500 $8,550,000 $450,000 $9,000,000

Direct materials $2,280,000 $142,500 $2,137,500 $112,500 $2,250,000

Direct manuf. labor 69,540 12,540 57,000 3,000 60,000

Direct marketing costs 356,250 71,250 427,500 22,500 450,000

Total variable costs $2,705,790 $ 83,790 $2,622,000 $138,000 $2,760,000

Contribution margin $5,986,710 $ 58,710 $5,928,000 $312,000 $6,240,000

Fixed costs $ 810,000 $ 10,000 $ 800,000 0 $ 800,000

Operating income $5,176,710 $ 48,710 $5,128,000 $312,000 $5,440,000

        

$48,710 $312,000

         Flexible budget variance Sales-volume variance

$263,290

Static budget variance

1. Static budget operating income = $5,440,000

actual operating income = $5,176,710

2. Static budget variance for operating income = $263,290

3. Flexible budget operating income = $5,128,000

4. Flexible budget variance for operating income = $48,710

5. Sales volume variance for operating income = $312,000

Solution: static budget operating income

Revenues – Total variable costs = contribution margin

Contribution margin – Fixed costs = operating income

Static budget operating income = $9,000,000 - $2,760,000 = $6,240,000

= $6,240,000 - $800,000

= $5,176,710

Solution: Static budget variance for operating income

Flexible budget variance – sales volume variance

= $48,710 - $312,000

= $263,290

Solution: flexible budget operating income (actual units x standard cost)

Revenues – Total variable costs = contribution margin

Contribution margin – Fixed costs = operating income

= $8,550,000 - $2,622,000 = $5,928,000

= $5,928,000 - $800,000

= $5,128,000

Solution: Flexible budget variance for operating income (actual results – flexible budget)

Revenues – Total variable costs = contribution margin

Contribution margin – Fixed costs = operating income

= $142,500 - $83,790 = $58,710

= $58,710 - $10,000

= $48,710

Solution: Sales volume variance for operating income (flexible budget – static budget)

Revenues – Total variable costs = contribution margin

Contribution margin – Fixed costs = operating income

Sales volume variance operating income

= $450,000 - $138,000 = 312,000

= $312,000 – 0

= $312,000

6.
Actual market size x Actual market size x Static budget: Budgeted
actual market share x budgeted market share x market size x budget
budgeted contribution budgeted contribution market share x budget
margin per unit margin per unit contribution margin per
unit

$5,928,000 $7,410,000 $6,240,000

$1,482,000 $1,170,000
Market Share Variance Market Size Variance

$312,000
Sales volume variance

Solution:

Budgeted market share = 1,500,000 ÷ 7,500,000 = 20%

Actual market share = 1,425,000 ÷ 8,906,250 = 16%

Budgeted contribution margin per unit = $6,240,000 ÷ 1,500,000 = $4.16 per unit

 8,906,250 x 16% x $4.16 = $5,928,000

 8,906,250 x 20% x $4.16 = $7,410,000
 7,500,000 x 20% x $4.16 = $6,240,000

Market share variance = $5,928,000 - $7,410,000 = $1,428,000

Market size variance = $7,410,000 - $6,240,000 = $1,170,000

 7. Actual cost incurred Actual input quantity x Flexible budget:
(actual input quantity x budgeted price (budgeted input quantity
actual price) allowed for actual output
x budgeted price

Direct manuf. labor $69,540 $68,400 $57,000

    

$1,140 $11,400

Price Variance Efficiency Variance

$12,540

Flexible budget variance

Solution:

 1,425,000 ÷ 250 = 5,700

 1,425,000 ÷ 300 = 4,750
 5,700 x $12.20 = $69,540
 5,700 x $12 = $68,400
 4,750 x 12 = 57,000

Price variance = $69,540 - $68,400 = $1,140

Efficiency variance = $68,400 - $57,000 = $11,400

Flexible budget variance = $1,140 + $11,400 = $12,540

         1.

         2.

         3.

         4.

         5.

         6.

         7.

         8.

ASSIGNMENT: FLEXIBLE BUDGETS, OVERHEAD COST VARIANCES, AND

MANAGEMENT CONTROL

NAME: _____________________________________________

INSTRUCTION: Please answer the following exercises and problems that will be found in the
PDF that was given to you under “LECTURES: THE MANAGER AND MANAGEMENT
ACCOUNTING”. Put your answers on the answer sheet provided below. If there are problems
that are computational in nature, please show your solutions. Thank you.

EXERCISE 8-17: ANSWERS (2 POINTS)

         1.

         2.

        

EXERCISE 8-20: ANSWERS (15 POINTS)

         1.

         2.

         3.

          

EXERCISE 8-21: ANSWERS (5 POINTS)

         1.

         2.

         3.

         4.

         5.

        

PROBLEM 8-29: ANSWERS (6 POINTS)

         1.

         2.

         3.

         4.

         5.

         6.

 
PROBLEM 8-33: ANSWERS (2 POINTS)

         1.

         2.

         3.

         4.

         5.

PROBLEM 7-39: ANSWERS (8 POINTS)

         1.

         2.

              A

                     B

                     C

                     D

                     E

                     F

                     G