MANAGEMENT ACCOUNTING
CONCEPTS AND TECHNIQUES
By Dennis Caplan, University
at Albany (State University of New York)
CHAPTER
6: Flexible Budgeting
Exercises
and Problems:
6-1: The Silver Company planned to make 10,000 units of product in July. Budgeted costs were $110,000 in variable costs and $220,000 in fixed costs. The company actually made 11,000 units. Actual costs incurred were $110,000 in variable costs and $210,000 in fixed costs. Calculate the flexible budget variance for July. Is it favorable or unfavorable?
6-2: The
6-3: A piano teacher has budgeted fixed costs of $1,250 per month, and budgeted variable costs of $1,200 per month, where variable costs are a linear function of the number of one-hour piano lessons. The piano teacher expected to give 120 one-hour piano lessons in April, but actually gave 150 one-hour piano lessons in April. Actual fixed costs were $1,000 and actual variable costs were $1,500. What is the flexible budget variance for April? Is it favorable or unfavorable?
6-4: The Amber Company planned to make
1,000 units of product in June. The static budget showed a per-unit cost of
$10, which consisted of $3 for variable costs and $7 for allocated fixed
overhead. The company actually made 1,100 units. The actual per-unit cost was
$10, which consisted of $3 for variable costs and $7 for allocated fixed
overhead. Calculate the total flexible budget variance for June. Is it favorable or unfavorable?
6-5: The static budget (i.e., the original budget) of the Tam-Taha Corporation showed a production cost of $10 per unit at a production level of 100 units. This $10 included $2 of fixed costs. Actual production was 200 units, and actual costs were $9 per unit, which included $1 of fixed costs. Calculate the flexible budget variance. Is it favorable or unfavorable?
6-6: MDC company plans to make 7,000 units, and at this level of production,
the cost per unit would be $50. This $50 consists of $30 in variable costs and
$20 in allocated fixed overhead. What would the flexible budget show for total
costs, if the company makes 6,000 units?
6-7: Kinney-Borst anticipates production and sales of 100 units, total variable costs of $6,000, and total fixed costs of $3,000. Actual production and sales were 200 units. Calculate a flexible budget.
6-8: At the beginning of the year, a company budgets variable costs of
$2,000 and fixed costs of $1,500 at a production level of 100 units. The
company actually produces 110 units, and incurs variable costs of $2,000 and
fixed costs of $1,800. What is the flexible budget variance? Is it favorable or
unfavorable?
6-9: CWC company planned to make 2,100 units in
2005, and budgeted $900,000 in fixed costs and $130 per unit for variable
costs. CWC actually made 2,000 units in 2005, and incurred total costs of
$1,200,000. What is the flexible budget variance for 2005? Is it favorable or
unfavorable?
6-10: Iron Butterfly, Inc., manufactures a single model of a deluxe portable camping stove. Information for August production is as follows:
|
|
Budgeted |
Actual |
|
Variable Costs, per unit |
$50 |
$52 |
|
Fixed Costs for August Production for August |
$2,500,000 40,000 units |
$2,150,000 38,000 units |
Required: What is the
flexible budget variance for August?
6-11: The Pretenders, Inc., produces exercise equipment for dogs. The following information pertains to variable manufacturing overhead, which is allocated using machine hours.
|
|
Budget |
Actual |
|
Units produced Machine hours Variable manufacturing overhead |
15,000 5,000 $161,250 |
22,000 7,500 $242,000 |
Required: Calculate the flexible budget variance.
6-12: The Bee Gees cultivate and sell honey. They provide you the following data with respect to the upcoming year.
Budgeted variable costs (per jar):
Cost of the jar & label $1.50
Labor 2.40
First aid supplies .25
Budgeted fixed costs:
Salaries: $50,000
Lease expense: 10,000
Other fixed costs 15,000
Relevant range over which these cost relationships are expected to hold: zero to 50,000 jars. Average sales price per jar is $7.00.
Required: Prepare three flexible budgets, showing operating income, for the following levels of sales (assume sales equals production):
A) 20,000 jars
B) 40,000 jars
C) 50,000 jars
6-13: The Vanilla Fudge Company runs a chain of ice cream stands in
the
Cost per gallon of premium ice cream $5.00
Scoops per gallon 20
Cost for the waffle cone .25
Paper products (a variable cost) $500 for the month
Fixed costs for the month
(salaries, rent, insurance, etc.) $1.00 per cone
Cones sold in June: 5,000
Sales price per cone: $2.35
The company expects the same cost relationships to hold for July.
Required: Prepare two pro
forma budgets for July, deriving projected operating income; one based on sales
of 7,500 cones, and one based on sales of 10,000 cones.
6-14: Assume the following information for the Chestnut Ridge Dog Kennel for 2004:
|
Number of dogs cared for Fixed Costs Variable Costs: Food Supplies Total Costs |
Budget 50 $40,000 $20,000 $10,000 $70,000 |
Actual 60 $45,000 $21,000 $13,200 $79,200 |
Variable costs are linear in the number of dogs cared for.
Required:
A) Calculate a flexible budget for 2004.
B) Calculate the flexible budget variance for each of the three expense line-items for 2004, and indicate whether the variance is favorable or unfavorable.
C) Assume that the actual results for 2004 are used as the basis for building the 2005 static budget, except that the kennel believes it will care for 50 dogs in 2005. Develop a static budget for 2005.
6-15: The Convent at New Skeet runs an orphanage. Sister Sarah manages the orphanage and Sister Rachel is responsible for the accounting records. Sister Rachel prepared the following summary of costs for 2001, including a column showing the original budget for 2001.
|
The New Skeet Orphanage - Cost Analysis |
2001
Budget |
2001
Actual |
|
Number of children (all ages) Fixed costs: Utilities Janitorial Services Repairs and Maintenance Salaries for non-Convent employees Total fixed costs Variable costs: Food Clothing Laundry & Linen Service Educational Costs Allowances Total variable costs Total costs |
80 $ 25,000 14,000 17,500 85,000 141,500 438,000 40,000 14,000 26,000 20,000 538,000 $679,500 |
72 $ 27,250 15,500 14,300 92,000 149,050 409,968 39,600 13,040 25,480 25,000 513,088 $662,138 |
Sister Sarah is very concerned that the orphanage uses its funds efficiently. She is pleased that total costs were below budget for the year, but she wonders if this is partly due to the fact that the orphanage housed fewer children than expected for the year.
Required:
A) Prepare a flexible budget for 2001, based (i.e., “flexed”) on the number of children actually housed in 2001.
B) Should Sister Sarah be satisfied with the orphanage’s cost management in 2001? Briefly explain.
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Management
Accounting Concepts and Techniques; copyright 2006; most recent update:
November 2010
For a printer-friendly version, contact Dennis Caplan at dcaplan@uamail.albany.edu