Exam 8: Flexible Budget and Variance Analysis

In most companies, variances are investigated only if they exceed a minimum dollar or percentage deviation from budgeted amounts.

The Beach Company currently produces sandals in an automated process. Expected production per month is 20,000 units. The required direct materials cost $1.50 per unit. Manufacturing fixed overhead costs are $40,000 per month. Manufacturing overhead is allocated based on units of production. is the budgeted manufacturing fixed overhead rate.

Currently attainable standards are levels of performance that can be achieved, although their achievement is unlikely.

Which of the following is a true statement?

The unfavorable variances resulting from ideal standards are intended to constantly remind personnel of the continuous need for improvement.

Fill in the missing information in the following table: Direct Direct Material Labor Actual quantity used per unit 4.0 pounds (c) Actual price paid \ 8 per pound \ 12 per hour Standard quantityper unit 2 pounds 4 hours Standard price per unit (a) \ 11 per hour Price variance \ 2,000 (U) \ 1,000 (U) Usage variance (b) \7 00(F) Flexible-budget variance \5 00(U) (d) Actual quantity produced 500 units

Use the following data to prepare a flexible budget for possible sales/production levels of 5,000, 5,500, and 6,000 units. Make sure to show the contribution margin at each activity level. Sales price \1 2.00 per unit Variable costs: Manufacturing \6 .00 per unit Administrative \ 1.50 per unit Selling \ 50 per unit Fixed costs: Manufacturing \1 5,000 Administrative \5 ,000

One cause of a flexible- budget variance might be a difference between expected and actual hourly wages for factory workers.

An example of a favorable variance is:

A variance that occurs when actual expenses are less than budgeted expenses

The Reynolds Company makes tables for which the following standards have been developed: Standard Inputs Standard Price Expected for E ach Expected per Unit of Output Unit of Output Direct materials 10 pounds \ 4 per pound Direct labor 3 hours \ 16 per hour Production of 230 tables was expected in July, but 250 tables were actually completed. Direct materials purchased and used were 2,200 pounds at an actual price of $4.40 per pound. Direct labor cost for the month was $10,620, and the actual pay per hour was $18.00. _ is the direct- material price variance for July.

A carefully determined cost per unit that should be attained

Expressions of the most efficient performance possible under the best conceivable conditions

Fill in the blanks to complete the flexible budget for Davidson Company. Budget Formula perUnit Various Levels of Output \2 5,000 Units \_\_\_ 3,000 3,500 4,000 Sales \2 5 Variable costs: Manufacturing \8 \_\_\_ \_\_\_ \_\_\_ Administrative \_\_\_ \1 0,500 \_\_\_ Fixed costs: Manufacturing \_\_\_ \_\_\_ Administrative \1 2,500 \_\_\_ \_\_\_ Operating income / (loss) \_\_\_ \_\_\_ \_\_\_ Answer: Various Levels of Output Units 3,000 3,500 4,000 Sales \ 75,000 \ 87,500 \ 100,000 Variable costs: Manufacturing 24,000 25,000 32,000 Administrative 10,500 12,000 Fixed costs: Manufacturing 25,000 25,000 25,000 Administrative 12,500 12,500 12,500 Operatingincome / (loss) \4 ,500 \1 1,500 \1 8,500

The following data for the Pull Company pertain to the production of 2,000 clay pigeons during March: Standard variable overhead cost: $6.00 per pound of clay. Total actual variable overhead cost: $11,200. Standard variable overhead cost allowed for units produced was $12,000. Variable overhead efficiency variance was $240 unfavorable. Is the variable overhead flexible- budget variance.

If the total sales activity variance and the master- budget variance are equal to each other, there is no flexible- budget variance.

Variances are signals that actual operations are different from what was anticipated.

A static budget has multiple levels of activity.

Differences between the master budget amounts and the flexible budget

would probably not be used as a measure of activity in a flexible budget.