Chapter 23: Q18RQ (page 1305)
List the eight product variances and the manager most likely responsible for each.
The purchasing manager looks after the materials cost and the labor cost by the human resource manager. The production manager looks after efficiency variances and variable and fixed overhead variances.
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Question: What is a static budget performance report?
Martin, Inc. is a manufacturer of lead crystal glasses. The standard direct materialsquantity is 1.0 pound per glass at a cost of \(0.50 per pound. The actual result for onemonth’s production of 6,500 glasses was 1.2 pounds per glass, at a cost of \)0.30 perpound. Calculate the direct materials cost variance and the direct materials efficiencyvariance.
Question:List the fixed overhead variances, and briefly describe each.
Question: List the variable overhead variances, and briefly describe each
Preparing a flexible budget performance report
Cell Plus Technologies manufactures capacitors for cellular base stations and other communication applications. The company’s July 2018 flexible budget shows output levels of 8,500, 10,000, and 12,000 units. The static budget was based on expected sales of 10,000 units.
Cell One Technologies | ||||
Flexible budget | ||||
For month ended July 31, 2018 | ||||
Budgeted amount per unit | ||||
Units | 8,500 | 10,000 | 12,000 | |
Sales revenue | \(24 | \)204,000 | \(240,000 | \)288,000 |
Variable expenses | 13 | 110,500 | 130,000 | 156,000 |
Contribution margin | 93,500 | 110,000 | 132,000 | |
Fixed expenses | 57,000 | 57,000 | 57,000 | |
Operating income | \(36,500 | \)53,000 | \(75,000 |
The company sold 12,000 units during July, and its actual operating income was as follows:
Cell One Technologies | |
Income statement | |
For the Month Ended July 31, 2018 | |
Sales revenue | \)295,000 |
Variable expenses | 161,100 |
Contribution margin | 133,900 |
Fixed expenses | 58,000 |
Operating income | $75,900 |
Requirements
1. Prepare a flexible budget performance report for July 2018.
2. What was the effect on Cell Plus’s operating income of selling 2,000 units more than the static budget level of sales?
3. What is Cell Plus’s static budget variance for operating income?
4. Explain why the flexible budget performance report provides more useful information to Cell Plus’s managers than the simple static budget variance. What insights can Cell Plus’s managers draw from this performance report?
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