Homework for AccountingGenius

Week Four Exercises

Complete the following exercises from Chapter 15 and submit them to the instructor by the end of Day 3. This assignment will be graded as a completion only. The instructor will post the answers to these exercises by the end of Day 5 for you to check your accuracy and comprehension of the subject matter. Exercises: 15-1, 15-2, 15-4, 15-5 in your textbook.

exercise 15-1 Classifying variances as favorable or unfavorable Required

Indicate whether each of the following variances is favorable or unfavorable. The first one has been done as an example.

Item to Classify Standard Actual Type of Variance

Labor cost $10.00 per hour $9.60 per hour Favorable

Labor usage 61,000 hours 61,800 hours

Fixed cost spending $400,000 $390,000

Fixed cost per unit (volume) $3.20 per unit $3.16 per unit

Sales volume 40,000 units 42,000 units

Sales price $3.60 per unit $3.63 per unit

Materials cost $2.90 per pound $3.00 per pound

Materials usage 91,000 pounds 90,000 pounds

Exercise 15-2 Determining amount and type (favorable vs. unfavorable) of variance Required

Compute variances for the following items and indicate whether each variance is favorable (F) or unfavorable (U).

Item Budget Actual Variance F or U

Sales price $650 $525

Sales revenue $580,000 $600,000

Cost of goods sold $385,000 $360,000

Material purchases at 5,000 pounds $275,000 $280,000

Materials usage $180,000 $178,000

Production volume 950 units 900 UNITS

Wages at 4,000 hours $60,000 $58,700

Labor usage at $16 per hour $96,000 $97,000

Research and development expense $22,000 $25,000

Selling and administrative expenses $49,000 $40,000

Exercise 15-3 Preparing master and flexible budgets Sexton Manufacturing Company established the following standard price and cost data.

Sales price $8.00 per unit

Variable manufacturing cost 4.00 per unit

Fixed manufacturing costs 3,000 total

Fixed selling and administrative costs 1,000 total

Sexton planned to produce and sell 2,000 units. Actual production and sales amounted to 2,200 units.

Required

a. Prepare the pro forma income statement in contribution format that would appear in a master budget.

b. Prepare the pro forma income statement in contribution format that would appear in a flexible budget

Exercise 15-4 Determining sales and variable cost volume variances

Required

Use the information provided in Exercise 15-3.

a. Determine the sales and variable cost volume variances.

b. Classify the variances as favorable (F) or unfavorable (U).

c. Comment on the usefulness of the variances with respect to performance evaluation and identify the member of the management team most likely to be responsible for these variances.

d. Determine the amount of fixed cost that will appear in the flexible budget.

e. Determine the fixed cost per unit based on planned activity and the fixed cost per unit based on actual activity. Assuming Sexton uses information in the master budget to price the company’s product, comment on how the volume variance could affect the company’s profitability.

Exercise 15-5 Determining flexible budget variances

Use the standard price and cost data provided in Exercise 15-3. Assume that the actual sales price is $7.65 per unit and that the actual variable cost is $4.25 per unit. The actual fixed manufacturing cost is $2,850, and the actual selling and administrative expenses are $1,025.

Required

a. Determine the flexible budget variances.

b. Classify the variances as favorable (F) or unfavorable (U).

c. Provide another name for the fixed cost flexible budget variance.

d. Comment on the usefulness of the variances with respect to performance evaluation and

identify the member(s) of the management team who is (are) most likely to be responsible for these variances.

Week Four Problems

Complete the following problems from Chapter 15 and submit to the instructor by the end of Day 7. These problems will be graded for accuracy. Problem: 15-18, 15-19, 15-20 in your textbook.

Problem 15-18 Determining sales and variable cost volume variances Todhunter Publications established the following standard price and costs for a hardcover picture book that the company produces.

Standard price and variable costs:

Sales price $36.00

Materials 9.00

Labor 4.50

Overhead 6.30

General, selling, and administrative 7.20

Planned fixed costs:

Manufacturing $135,000

General, selling, and administrative 54,000

Todhunter planned to make and sell 30,000 copies of the book.

Required

a. Prepare the pro forma income statement that would appear in the master budget.

b. Prepare flexible budget income statements, assuming volumes of 29,000 and 31,000 units.

c. Determine the sales and variable cost volume variances, assuming volume is actually 31,000

units.

d. Indicate whether the variances are favorable (F) or unfavorable (U).

e. Comment on how Todhunter could use the variances to evaluate performance.

Problem 15-19 Determining and interpreting flexible budget variances

Use the standard price and cost data supplied in Problem 15-18. Assume that Todhunter actually produced and sold 31,000 books. The actual sales price and costs incurred follow.

Actual price and variable costs:

Sales price $35.00

Materials 9.20

Labor 4.40

Overhead 6.35

General, selling, and administrative 7.00

Actual fixed costs:

Manufacturing $120,000

General, selling, and administrative 60,000

Required

a. Determine the flexible budget variances.

b. Indicate whether each variance is favorable (F) or unfavorable (U).

c. Identify the management position responsible for each variance. Explain what could have

caused the variance.

Problem 15-20 Flexible budget planning

Luke Chou, the president of Digitech Computer Services, needs your help. He wonders about the potential effects on the firm’s net income if he changes the service rate that the firm charges its customers. The following basic data pertain to fiscal year 2012.

Standard rate and variable costs:

Service rate per hour $80.00

Labor 40.00

Overhead 7.20

General, selling, and administrative 4.30

Expected fixed costs:

Facility repair $525,000.00

General, selling, and administrative 150,000.00

Required

a. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 30,000 hours of services in 2012.

b. A marketing consultant suggests to Mr. Chou that the service rate may affect the number of service hours that the firm can achieve. According to the consultant’s analysis, if Digitech charges customers $75 per hour, the firm can achieve 38,000 hours of services. Prepare a flexible budget using the consultant’s assumption.

c. The same consultant also suggests that if the firm raises its rate to $85 per hour, the number of service hours will decline to 25,000. Prepare a flexible budget using the new assumption.

d. Evaluate the three possible outcomes you determined in Requirements a, b, and c and recommend a pricing strategy.