Chapter 21: Q4DQ (page 967)
What type of analysis does a flexible budget performance report help management perform?
A flexible budget performance report helps the management analyze the actual revenues and associated costs.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
City Company’s fixed budget performance report for July follows. The \(647,500 budgeted total expenses include \)487,500 variable expenses and \(160,000 fixed expenses. Actual expenses include \)158,000 fixed expenses. Prepare a flexible budget performance report that shows any variances between budgeted results and actual results. List fixed and variable expenses separately.
Fixed Budget Actual Results Variances
Sales (in units) 7,500 7,200
Sales (in dollars) \(750,000 \)737,000 \(13,000 U
Total expenses 647,500 641,000 6,500 F
Income from operations \)102,500 \(96,000 \)6,500 U
Refer to information in QS 21-3. Assume that actual sales for the year are \(480,000 (26,000 units), actual variable costs for the year are \)112,000, and actual fixed costs for the year are $145,000. Prepare a flexible budget performance report for the year.
Presented below are terms preceded by letters a through j and a list of definitions 1 through 10. Enter the letter of the term with the definition, using the space preceding the definition.
| 1. The difference between actual and budgeted sales or cost caused by the difference between the actual price per unit and the budgeted price per unit. |
| 2. A planning budget based on a single predicted amount of sales or production volume; unsuitable for evaluations if the actual volume differs from the predicted volume. |
| 3. Preset costs for delivering a product, component, or service under normal conditions. |
| 4. A process of examining the differences between actual and budgeted sales or costs and describing them in terms of the amounts that resulted from price and quantity differences. |
| 5. The difference between the total budgeted overhead cost and the overhead cost that was allocated to products using the predetermined fixed overhead rate. |
| 6. A budget prepared based on predicted amounts of revenues and expenses corresponding to the actual level of output. |
| 7. The difference between actual and budgeted cost caused by the difference between the actual quantity and the budgeted quantity. |
| 8. The combination of both overhead spending variances (variable and fixed) and the variable overhead efficiency variance. |
| 9. A management process to focus on significant variances and give less attention to areas where performance is close to the standard. |
| 10. The difference between actual cost and standard cost, made up of a price variance and a quantity variance. |
Phoenix Company’s 2017 master budget included the following fixed budget report. It is based on an expected production and sales volume of 15,000 units.
| PHOENIX COMPANY | ||
| Fixed Budget Report | ||
| For Year Ended December 31, 2017 | ||
Sales | \(3,000,000 | |
Cost of goods sold | ||
Direct materials | \)975,000 | |
Direct labor | 225,000 | |
Machinery repairs (variable cost) | 60,000 | |
Depreciation-Plant equipment (straight-line) | 300,000 | |
Utilities (\(45,000 is variable) | 195,000 | |
Plant management salaries | 200,000 | 1,955,000 |
Gross profit | 1,045,000 | |
Selling expenses | ||
Packaging | 75,000 | |
Shipping | 105,000 | |
Sales salary (fixed annual amount) | 250,000 | 430,000 |
General and administrative expenses | ||
Advertising expense | 125,000 | |
Salaries | 241,000 | |
Entertainment expense | 90,000 | 456,000 |
Income from operations | \)159,000 | |
Required
1. Classify all items listed in the fixed budget as variable or fixed. Also determine their amounts per unit or their amounts for the year, as appropriate.
2. Prepare flexible budgets (see Exhibit 21.3) for the company at sales volumes of 14,000 and 16,000 units.
3. The company’s business conditions are improving. One possible result is a sales volume of 18,000 units. The company president is confident that this volume is within the relevant range of existing capacity. How much would operating income increase over the 2017 budgeted amount of $159,000 if this level is reached without increasing capacity?
4. An unfavorable change in business is remotely possible; in this case, production and sales volume for 2017 could fall to 12,000 units. How much income (or loss) from operations would occur if sales volume falls to this level?
The following information describes production activities of Mercer Manufacturing for the year.
Actual direct materials used 16,000 lbs. at \(4.05 per lb.
Actual direct labor used 5,545 hours for a total of \)105,355
Actual units produced 30,000
Budgeted standards for each unit produced are 0.50 pounds of direct material at \(4.00 per pound and 10 minutes of direct labor at \)20 per hour.
1. Compute the direct materials price and quantity variances and classify each as favorable or unfavorable.
2. Compute the direct labor rate and efficiency variances and classify each as favorable or unfavorable.
What do you think about this solution?
We value your feedback to improve our textbook solutions.
