Chapter 23: Q2RQ (page 1305)
Explain the difference between a favorable and an unfavorable variance.
Answer
Favorable variance is suitable for a business entity, while unfavorable variance is not suitable for the business entity.
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
Cell One Technologies manufactures capacitors for cellular base stations and other communications applications. The company’s July 2018 flexible budget shows output levels of 6,000, 7,500, and 9,500 units. The static budget was based on expected sales of 7,500 units.
CELL ONE TECHNOLOGIES Flexible Budget For the Month Ended July 31, 2018 |
Budget Amount per Unit |
Units 6,000 7,500 9,500 |
Sales Revenue \(21 \)126,000 \(157,500 \)199,500 |
Variable Expenses 10 60,000 75,000 95,000 |
Contribution Margin 66,000 82,500 104,500 |
Fixed Expenses 55,000 55,000 55,000 |
Operating Income \(11,000 \)27,500 \(49,500 |
The company sold 9,500 units during July, and its actual operating income was as follows:
CELL ONE TECHNOLOGIES Income Statement For the Month Ended July 31, 2018 |
Sales Revenue \)206,500 |
Variable Expenses 100,100 |
Variable Expenses 106,400 |
Fixed Expenses 56,000 |
Operating Income $504,00 |
Requirements
1. Prepare a flexible budget performance report for July.
2. What was the effect on Cell One’s operating income of selling 2,000 units more than the static budget level of sales?
3. What is Cell One’s static budget variance for operating income?
4. Explain why the flexible budget performance report provides more useful information to Cell One’s managers than the simple static budget variance. What insights can Cell One’s managers draw from this performance report?
Question:What is management by exception?
Matching terms
Match each term to the correct definition.
Terms Definitions
a. Benchmarking
b. Efficiency variance
c. Cost variance
d. Standard
1. Measures whether the quantity of materials or laborused to make the actual number of outputs is within thestandard allowed for the number of outputs.
2. Uses standards based on best practice.
3. Measures how well the business keeps unit costs ofmaterials and labor inputs within standards.
4. A price, cost, or quantity that is expected under normalconditions.
Question:Top managers of Marshall Industries predicted 2018 sales of 14,800 units of its product at a unit price of \(9.50. Actual sales for the year were 14,600 units at \)12.00 each. Variable costs were budgeted at \(2.00 per unit, and actual variable costs were \)2.10 per unit. Actual fixed costs of \(48,000 exceeded budgeted fixed costs by \)4,000.
Prepare Marshall’s flexible budget performance report. What variance contributed most to the year’s favorable results? What caused this variance?
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.
What do you think about this solution?
We value your feedback to improve our textbook solutions.
