Question 1. The following direct materials variance computation is incomplete:
Price variance = (? - $12)x 14,500 pounds + $5,800 U
Efficiency variance = (? – 14, 700 pounds) x $12 = ? F
Flexible budget variance = 3, 400?
Fill in the missing values; identify the flexible budget as favorable or unfavorable.
Question 2. Polystar manufactures carpeting. The company charges the following standard unit costs to production on the basis of static budget volume of 30,000 linear feet of carpet per month:
Direct materials $2.50
Direct Labor 2.00
Manufacturing overhead 1.50
Standard Unit cost $6.00
Polystar used the following monthly Flexible budget overhead:
Number of Outputs-(linear feet)
27,000 30,000 33,000
Standard machine hours 2,700 3,000 3,300
Budgeted manufacturing overhead cost:
Variable $13, 500 $15,000 $16, 500
Fixed 30,000 30,000 30,000
Polystar actually produced 33, 000 linear feet of carpet, using 3100 machine hours. Actual variable overhead was $16,200, and fixed overhead was $30, 500. Compute the total overhead variance, the overhead flexible budget variance, and the production volume variance.
Question 3. Cellular Technologies manufactures capacitors for cellular base stations and other communications applications. The company’s static budget income statement for October 20X4 follows. It is based on expected sales volume of 9,000 units. Cellular Technologies plant capacity is 9,500 units. If an actual volume exceeds 9,500 units, Cellular Technologies must rent additional space. In that case, salaries will increase by 15%, rent will double, and insurance expense will increase by 1,000. Depreciation will be unaffected.
Sales revenue $189,000
Variable expense:
Cost of goods sold 72,000
Sales commissions 9, 450
Shipping expense 4, 500
Fixed expenses:
Salary expense 27, 500
Depreciation expense 13, 250
Rent expense 11,250
Insurance expense 2, 750
Total expense 140, 700
Operating income $48, 300
A. Prepare flexible budget income statements for 7,500, 9,000 and 11,000 units.
B. Graph the behavior of the company total costs.
C. Why might Cellular Technologies managers want to see the graph you prepared in requirement 2 as well as the columnar format analysis in requirement 1? What is the disadvantage of the graphic approach in requirement 2?
Question 4. Top managers of Wang Industries predicted 20x4 sales of 145,000 units of its product at a unit price of $7. Actual sales for the year were 140,000 units at $8.50 each. Variable expenses were budgeted at $2.20 per unit, and actual variable expenses were $2.25 per unit. Actual fixed expenses of $420,000 exceed budgeted fixed expenses by $10,000. Prepare Wang’s income statement performance report in a format similar to example given below. What variance contributed most to the year’s favorable results? What caused this variance?
Actual results at Flexible budget Flexible budget Sales Static
Actual Prices Variance for actual # of Volume (master)
output units variance Budget
Output units 24,000 24,000 4,000 F
Sales revenue 192,000 192,000 32,000 F
Variable expense 85,000 80,000 20,000 U
Fixed expenses 104,000 100,000 0
Total expenses 189,000 180,000 20,000 U
Operating expenses 3,000 12,000 12,000 F