finman chapter 21 sm - departamento de...

©2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Solutions Manual, Chapter 21 1173

Chapter 21 Flexible Budgets and Standard Costing

QUESTIONS 1. Fixed budget performance reports have limited usefulness because they do not reflect

differences in revenues and variable costs that can occur simply because actual volume is different from budgeted volume. This is a serious limitation when evaluating (benchmarking) the reasonableness of actual revenues and costs.

2. The primary purpose of a flexible budget is to help managers better evaluate past performance, which can improve their abilities to monitor and control operations.

3. The proper title is: Spalding Company Flexible Budget Performance Report For Year Ended December 31, 2013

The proper title communicates to the user the focus of the report. Although it may seem obvious, many reports used in the business world do not have a proper or descriptive title. The sooner a student begins to make this a routine task in completing assignments, the better skilled s/he will be for the business world.

4. A flexible budget performance report is useful for an analysis of the difference between actual performance and budgeted performance—often called variance analysis. Its usefulness stems from the fact that both the budgeted and actual results are based on the same level of activity.

5. A variable cost implies a constant per unit cost for each unit produced or sold within the relevant range.

6. The human resource department is usually responsible for a labor rate variance. The production department is usually responsible for a labor efficiency variance. However, the two responsibilities may not be completely separate. For example, a favorable rate variance may have occurred because the human resource department hired poorly trained employees, in which case the production department used more hours than expected (resulting in an unfavorable efficiency variance) because of higher waste.

7. A price variance is that portion of a cost variance caused by a difference between the actual unit price of an item and its standard price. A quantity variance is that portion of a cost variance caused by a difference between the actual number of units of an item used and the standard number of units budgeted to be used.


Financial & Managerial Accounting, 5th Edition 1174

8. Standard costs are used to establish a basis to assess the reasonableness of actual costs. A comparison of standard costs to actual costs should help management identify unexpected differences and then pursue explanations as to why actual costs varied from the standard.

9. An overhead volume variance is the difference between (a) the amount of (fixed) overhead that would have been budgeted at the actual operating level achieved during the period (that is, budgeted fixed overhead) and (b) the standard amount of (fixed) overhead applied to actual products produced during the period. A volume variance occurs when the actual volume differs from the expected volume that is used to establish the predetermined rate.

10. A predetermined standard overhead rate is a measure computed and used in a standard cost system to assign overhead costs to products. Before the period begins, budgeted total overhead costs (variable and fixed) at the expected volume are divided by the expected amount of the allocation base (direct labor hours, machine hours, or some other measure of activity). This yields the predetermined standard overhead rate. Then as production activities occur, this predetermined overhead rate is applied to the standard quantity of output produced to establish the amount of overhead assigned to that output.

11. In general, variance analysis is said to provide information about price and quantity variances.

12. A controllable variance is the difference between (a) the total overhead cost actually incurred in the period and (b) the total overhead cost that would have been budgeted at the actual operating level achieved. Specifically, the controllable variance is the sum of the total variable overhead variances (both variable overhead spending and efficiency variances) and the fixed overhead spending variance.

13. Standard costs provide a basis for evaluating actual performance. Summary information comparing actual costs to budgeted costs is captured and reported in a flexible budget. The evaluation reports differences between actual costs and standard costs as variances. Variance analysis draws attention to situations where actual costs differ from standard costs. Management by exception can be used in performing variance analysis by focusing management’s attention on the variances where actual costs are most different from standard costs.

14. Before a period starts, the manager can prepare flexible budgets for the various types of snowmobiles. Then, she could estimate both the best and worst case scenarios for the upcoming period. The manager can then adjust personnel or promotions, for instance, to help achieve acceptable results. After the period ends, the manager can use the flexible budget to determine how actual results compare to the plan for the achieved level of sales.

15. Apple schedules appointments with customers to service Apple computers, iPhones, iPods etc. These service appointments require standard hours at standard rates to complete, depending on the type of service. Apple can calculate the price (rate) and quantity (efficiency) variances for these various services to maintain control over them.



16. The controllable variance should not be affected by achieving an actual operating level different from the budgeted level. If the company operated at 75% of capacity, a controllable variance will arise only if the actual overhead cost is different from the amount shown on a flexible budget for overhead computed at the 75% level.

In contrast, the volume variance is affected when the percent of actual capacity differs from that expected. If the company operated at less than planned (for example, at 75% instead of the 80% budgeted) the volume variance will be unfavorable. This means that the company will not apply as much overhead to each unit or job as planned. Stated differently, each job or unit will be undercosted.

QUICK STUDIES Quick Study 21-1 (15 minutes)

BEECH COMPANY Flexible Budget Performance Report

For Month Ended May 31

Flexible Actual Budget Results Variances

Sales .................................................. $1,300,000 $1,275,000 $25,000 U

Variable costs ................................... 750,000 712,500 37,500 F

Contribution margin ......................... 550,000 562,500 12,500 F

Fixed costs ........................................ 300,000 300,000 0

Income from operations .................. $ 250,000 $ 262,500 $12,500 F

Quick Study 21-2 (5 minutes) A standard cost card for one bat would include: Direct materials (1 kg. @$18 per kg.) ............................................... $18

Direct labor (0.25 hours @$20 per hour) .......................................... 5

Overhead (0.25 labor hours $40 per hour) ....................................... 10

Total ..................................................................................................... $33



Quick Study 21-3 (5 minutes) Actual cost for one bat ...................................................................... $40

Standard cost for one bat (from QS 21-2) ........................................ 33

Cost variance ...................................................................................... $ 7

As the actual costs are greater than the standard costs, the cost variance is unfavorable. Quick Study 21-4 (10 minutes) 1. Management by exception involves managers focusing on the most

significant variances for analysis and action strategies. It also results in

less attention given to areas where performance is close enough to the

standard to be satisfactory. This means management concentrates on the

exceptional or irregular situations and defers dealing with areas that report

actual results reasonably close to the plan.

2. Management often uses standard costs to compute these variances. Since

standard costs are used by managers to focus on the areas in which actual

results deviate most significantly from the norm, the accurate setting of

standard costs is crucial to effective implementation of management by

exception.

Quick Study 21-5 (10 minutes) Standard direct materials cost .......................................................... $150,000

Materials price variance (favorable) ................................................. (12,000)

Materials quantity variance (favorable) ............................................ (2,000)

Actual total direct materials cost ...................................................... $136,000



Quick Study 21-6 (10 minutes) Standard direct labor cost ................................................................. $400,000

Labor rate variance (unfavorable) .................................................... 20,000

Labor efficiency variance (unfavorable) .......................................... 10,000

Actual total direct labor cost ............................................................. $430,000

Quick Study 21-7 (15 minutes) Following information is given

Actual price per pound ................................................................................ $ 78.00

Standard price per pound ............................................................................ 77.50

Material price variance per pound (unfavorable) ...................................... $ 0.50

It is also known that: Material price variance = Price variance per pound x Actual pounds used Actual pounds used = Material price variance / Price variance per pound

Therefore, substituting with the information given above: Actual pounds used = $4,000 / $0.50 = 8,000 pounds Quick Study 21-8 (10 minutes)

Standard overhead cost .............................................................................. $225,000

Overhead volume variance (favorable) ...................................................... (20,000)

Overhead controllable variance (unfavorable) .......................................... 60,400

Actual total overhead cost .......................................................................... $265,400

Quick Study 21-9A (10 minutes) Goods in Process Inventory .................................................... 225,000 Controllable Variance .............................................................. 60,400 Volume Variance ............................................................. 20,000 Factory Overhead ............................................................ 265,400 To apply overhead and to record overhead variances.



Quick Study 21-10 (10 minutes)

Actual variable overhead (4,700 x $4.15)* .................................................. $19,505

Applied variable overhead (5,000 x $4.00)** ............................................. 20,000

Total variable overhead cost variance ....................................................... $ 495 F *Actual machine hours x Actual variable overhead rate **Standard machine hours x Standard variable overhead rate

Quick Study 21-11A (15 minutes)

Variable overhead spending and efficiency variances

Actual Overhead AH x AVR

AH x SVR

Applied Overhead SH x SVR

(4,700 x $4.15) 4,700 x $4.00 5,000 x $4.00 hours per hour hours per hour hours per hour

$19,505 $18,800 $20,000

$705 U

(Spending variance) $1,200 F

(Efficiency variance)

$495 F

(Total variable overhead variance)


Sales Actual Flexible Budget Fixed Budget

Units 50 50 45

Price per unit

$9,000 $9,500 $9,500

Total dollars

(50 x $9,000) (50 x $9,500) (45 x $9,500)

$450,000 $475,000 $427,500

$25,000 U $47,500 F (Sales price variance) (Sales volume variance)




Fixed costs (unchanged) ............................................................................. $300,000

Variable costs [($246,000/24,000) x 20,000 units] ..................................... 205,000

Total budgeted costs (flexible budget) ...................................................... $505,000

Quick Study 21-14 (10 minutes) From the flexible budget at 20,000 units, compute the sales price and variable costs per unit: Sales price per unit = $400,000/20,000 units = $20.00 per unit Variable cost per unit = $80,000/20,000 units = $4.00 per unit

At a production level of 26,000 units:

Sales (26,000 x $20.00) ................................................................................. $520,000

Variable costs (26,000 x $4.00).................................................................... 104,000

Contribution margin ..................................................................................... 416,000

Fixed costs (unchanged) ............................................................................. 150,000

Income from operations .............................................................................. $266,000


BRODRICK COMPANY Flexible Budget Performance Report

For Year Ended December 31


Sales (13,000 units) ......................... $520,000 $480,000 $40,000 U

Variable expenses ........................... 104,000 112,000 8,000 U

Contribution margin ........................ 416,000 368,000 48,000 U

Fixed expenses ................................ 150,000 145,000 5,000 F

Income from operations .................. $266,000 $223,000 $43,000 U



Quick Study 21-16 (10 minutes) Direct materials price variance:

Actual cost of direct materials used (given) .............................................. $535,000

Actual quantity used x Standard price (300,000 x $2) .............................. 600,000

Direct materials price variance (favorable) ................................................ $ 65,000

Direct materials quantity variance:

Actual quantity used x Standard price (300,000 x $2) .............................. $600,000

Standard quantity x Standard price (60,000 x 4 x $2) ............................... 480,000

Direct materials quantity variance (unfavorable) ...................................... $120,000

Quick Study 21-17 (10 minutes) Direct labor rate variance:

Actual hours x Actual rate per hour (65,000 x $15) ................................... $975,000

Actual hours x Standard rate per hour (65,000 x $14) .............................. 910,000

Direct labor rate variance (unfavorable) .................................................... $ 65,000

Direct labor efficiency variance:

Actual hours x Standard rate per hour (65,000 x $14) .............................. $910,000

Standard hours x Standard rate per hour (67,000 x $14) ......................... 938,000

Direct labor efficiency variance (favorable) ............................................... $ 28,000




Actual overhead incurred ............................................................................ $262,800

Less: Applied overhead (based on flexible budget)

Variable overhead (110,000 x $1.40*) ......................................................

Fixed overhead (unchanged) ..................................................................

Controllable overhead variance (favorable) ..............................................

154,000

124,000

$ 15,200 *$162,400/116,000 units = $1.40 variable overhead rate per unit


Actual overhead incurred ............................................................................ $ 28,175

Less: Applied overhead (based on flexible budget)

Variable overhead (9,800 x $3.10) ............................................................

Fixed overhead (unchanged) ..................................................................

Controllable overhead variance (favorable) ..............................................

30,380

12,000

$(14,205)


Budgeted fixed overhead (at 12,000 units) ................................................ $12,000

Fixed overhead applied to production (9,800 x $1) ...................................

Volume variance (favorable) .......................................................................

9,800

$ 2,200

Quick Study 21-21 (15 minutes) Sales Actual Flexible Budget Fixed Budget

Units 216,944 216,944 225,944

Price per unit

$30,200 $30,000 $30,000

Total dollars

(216,944 x $30,200) (216,944 x $30,000) (225,944 x $30,000)

$6,551,708,800 $6,508,320,000 $6,778,320,000

$43,388,800 F $270,000,000 U (Sales price variance) (Sales volume variance)



EXERCISES

Exercise 21-1 (20 minutes)

Item Cost

a. Bike frames Variable

b. Screws for assembly Variable

c. Repair expense for tools (If these costs are only remotely related

to volume, they may be better classified as fixed) Variable

d. Direct labor (If employees receive monthly salaries, this cost would

be fixed) Variable

e. Bike tires Variable

f. Gas used for heating** Variable

g. Incoming shipping expenses* Variable

h. Taxes on property Fixed

i. Office supplies (This item can be a variable cost, but it usually is

not because it doesn’t often change in direct proportion to changes in the volume level)

Fixed

j. Depreciation on tools (If the company uses the units-of-

production method, the depreciation would be variable) Fixed

k. Management salaries Fixed

* Incoming shipping expenses are variable with respect to the number (volume) of

incoming shipments, not production.

** Gas used for heating is often a mixed cost rather than strictly variable.




TEMPO COMPANY Flexible Budgets

For Quarter Ended March 31, 2013

Flexible Budget Flexible Flexible Flexible

Variable Amount per Unit*

Total Fixed Cost

Budget for Unit Sales

of 6,000


of 7,000


of 8,000

Sales ................................... $400.00 $2,400,000 $2,800,000 $3,200,000

Variable costs

Direct materials ................ 40.00 240,000 280,000 320,000

Direct labor ....................... 70.00 420,000 490,000 560,000

Production supplies ........ 25.00 150,000 175,000 200,000

Sales commissions ......... 20.00 120,000 140,000 160,000

Packaging ......................... 22.00 132,000 154,000 176,000

Total variable costs ......... 177.00 1,062,000 1,239,000 1,416,000

Contribution margin .......... $223.00 1,338,000 1,561,000 1,784,000

Fixed costs

Plant manager salary ....... $ 65,000 65,000 65,000 65,000

Advertising ....................... 125,000 125,000 125,000 125,000

Admin. salaries ................ 85,000 85,000 85,000 85,000

Depr.—Office equip. ........ 35,000 35,000 35,000 35,000

Insurance .......................... 20,000 20,000 20,000 20,000

Office rent ......................... 36,000 36,000 36,000 36,000

Total fixed costs .............. $366,000 366,000 366,000 366,000

Income from operations ....... $ 972,000 $1,195,000 $1,418,000

* Equals total variable costs divided by the volume of 7,000 units.




SOLITAIRE COMPANY Flexible Budget Performance Report

For Month Ended June 30


Sales (10,800 units) ......................... $540,000 $540,000 $ 0

Variable expenses ........................... 378,000 351,000 27,000 F

Contribution margin ........................ 162,000 189,000 27,000 F

Fixed expenses ................................ 21,000 27,000 6,000 U

Income from operations .................. $141,000 $162,000 $21,000 F

Supporting computations

Total fixed budget sales ...................................................... $ 420,000

Total fixed budget units ....................................................... ÷ 8,400

Budgeted selling price......................................................... $50 per unit

Flexible budget units ........................................................... × 10,800

Flexible budget sales ........................................................... $ 540,000

Total fixed budget variable expenses ................................ $ 294,000

Total units budgeted ............................................................ ÷ 8,400

Budgeted variable expenses ............................................... $35 per unit

Flexible budget units ........................................................... × 10,800

Flexible budget variable expenses ..................................... $ 378,000

Total actual expenses .......................................................... $ 378,000

Less actual fixed expenses ................................................. 27,000

Total actual variable expenses ........................................... $ 351,000




BAY CITY COMPANY Flexible Budget Performance Report

For Month Ended July 31


Sales (7,200 units)............................ $720,000 $737,000 $17,000 F

Variable expenses ........................... 468,000 483,000 15,000 U

Contribution margin ........................ 252,000 254,000 2,000 F

Fixed expenses ................................ 160,000 158,000 2,000 F

Income from operations .................. $ 92,000 $ 96,000 $ 4,000 F


Total fixed budget sales ............................................ $ 750,000

Total units budgeted .................................................. ÷ 7,500

Budgeted selling price .............................................. $100 per unit

Flexible budget units ................................................. × 7,200

Flexible budget sales ................................................. $ 720,000

Total fixed budget variable expenses ...................... $ 487,500

Total units budgeted .................................................. ÷ 7,500

Budgeted variable expenses ..................................... $ 65 per unit

Flexible budget units ................................................. × 7,200

Flexible budget variable expenses ........................... $ 468,000

Total actual expenses ................................................ $ 641,000

Less actual fixed expenses ....................................... 158,000

Total actual variable expenses ................................. $ 483,000




1.

October variances

Preliminary computations Actual hours: 16,250 hours (given) Standard hours: 5,600 units x 3 hrs./unit = 16,800 hrs. Actual rate: $247,000/16,250 hours = $15.20/hr. Standard rate: $15.00/hr. (given)

Direct labor cost variances Actual units at actual cost [16,250 hrs. @ $15.20] ............................................. $247,000 Standard units and standard cost [16,800 hrs. @ $15.00] ................................ 252,000 Direct labor cost variance .................................................................................... $ 5,000 F

Rate and efficiency variances

Actual Cost AH x AR

AH x SR

Standard Cost SH x SR

16,250 x $15.20 16,250 x $15.00 16,800 x $15.00 hours per hour hours per hour hours per hour

$247,000 $243,750 $252,000

$3,250 U

(Rate variance) $8,250 F


$5,000 F

(Total labor variance)

Alternate solution format Rate variance = AH x (AR – SR) = 16,250 hours x ($15.20 - $15.00) per hour = 16,250 hours x $0.20 per hour = $3,250 U Efficiency variance = (AH - SH) x SR = (16,250 – 16,800) hours x $15.00 per hour = (-550 hours) x $15.00 per hour = $8,250 F Rate variance ...................... $3,250 U Efficiency variance ............. 8,250 F Total ..................................... $5,000 F



Exercise 21-5 (Concluded)

November variances

Preliminary computations Actual hours: 22,000 hours (given) Standard hours: 6,000 units x 3 hrs./unit = 18,000 hours Actual rate: $335,500/22,000 hrs. = $15.25/hr. Standard rate: $15.00/hr. (given)

Direct labor cost variances Actual units at actual cost [22,000 hrs. @ $15.25] ............................................. $335,500 Standard units at standard cost [18,000 hrs. @ $15.00] .................................... 270,000 Direct labor cost variance .................................................................................... $ 65,500 U

Rate and efficiency variances

Actual Cost AH x AR

AH x SR


22,000 x $15.25 22,000 x $15.00 18,000 x $15.00 hours per hour hours per hour hours per hour

$335,500 $330,000 $270,000

$5,500 U

(Rate variance) $60,000 U


$65,500 U


2. The unfavorable labor rate variance in October means the actual rate for an hour of labor is greater than budgeted. The favorable labor efficiency variance means the actual hours used are less than budgeted. Together, these results can be interpreted to mean that employees are paid more than budgeted, but are also more productive than budgeted. Perhaps a more skilled labor force was used during the month of October. In November, there was an unfavorable rate variance and an unfavorable efficiency variance. The company needs to look carefully at why there was such a large unfavorable efficiency variance.




1. Predetermined overhead rate computations

Expected volume ...................................................................... 75%

Expected total overhead .......................................................... $2,100,000

Expected hours ........................................................................ 375,000 hrs.

Variable cost per hour ($1,500,000/ 375,000) ......................... $4.00

Fixed cost per hour ($600,000/ 375,000) ................................ $1.60

Total cost per hour ($2,100,000/ 375,000) .............................. $5.60

2. Variable overhead cost variance

Variable overhead cost incurred [given] ................................................... $1,375,000

Variable overhead cost applied [350,000 hrs. @ $4.00] ........................... 1,400,000

Variable overhead cost variance ................................................................ $ 25,000 F

Fixed overhead cost variance

Fixed overhead cost incurred [given] .............................................. $ 628,600

Fixed overhead cost applied [350,000 hrs. @ $1.60] ...................... 560,000

Fixed overhead cost variance .......................................................... $ 68,600 U



Exercise 21-7A (20 minutes) 1.

Variable overhead spending and efficiency variances


AH x SVR


(Given) 340,000 x $4.00 350,000 x $4.00 hours per hour hours per hour

$1,375,000 $1,360,000 $1,400,000

$15,000 U



$25,000 F


Interpretation:

The $15,000 unfavorable spending variance means the actual cost of variable

overhead is more than budgeted. This unfavorable variance can occur

because the cost of variable overhead is greater than budgeted or because

more variable items are consumed than anticipated. It could also be a

combination of both; where the cost and usage may be greater or less than

anticipated, yet the net impact is an unfavorable spending variance.

The $40,000 favorable efficiency variance occurs because the actual labor

hours used is less than the standard labor hours required for actual

production. Labor hours are used as the allocation base.



Exercise 21-7 A (continued) 2.

Fixed overhead spending and volume variances

Actual Overhead Budgeted Overhead Applied Overhead

(Given) (Given) 350,000 x $1.60 hours per hour

$628,600 $600,000 $560,000

$28,600 U

(Spending variance) $40,000 U

(Volume variance)

$68,600 U

(Total fixed overhead variance)

Interpretation The $28,600 unfavorable spending variance means actual cost of fixed overhead is more than budgeted.

The $40,000 unfavorable volume variance is the result of the company actually operating at 70% capacity rather than the budgeted 75% capacity. Not all of the budgeted fixed overhead is applied to production because actual volume fell below budgeted volume. 3. The controllable variance is computed as:

Variable overhead spending variance ................................... $15,000 U Variable overhead efficiency variance ................................... 40,000 F Fixed overhead spending variance ........................................ 28,600 U Controllable variance ............................................................... $ 3,600 U

The controllable variance refers to activities that are considered within management’s control. The unfavorable controllable variance of $3,600 indicates that overall, management performed relatively poorly in controlling overhead costs.




1. Preliminary computations Actual quantity: 22,000 bd. ft. (given) Standard quantity: 3,000 units x 8 bd. ft./unit = 24,000 bd. ft. Actual price: $266,200/22,000 bd. ft. = $12.10/bd. ft. Standard price: $12.00/bd. ft. (given)

Direct material cost variances

Actual units at actual cost [22,000 bd. ft. @ $12.10] ................................. $266,200 Standard units at standard cost [(24,000 bd. ft. @ $12.00] ...................... 288,000 Direct material cost variance ...................................................................... $ 21,800 F

Price and quantity variances

Actual Cost AQ x AP

AQ x SP

Standard Cost SQ x SP

22,000 x $12.10 22,000 x $12.00 24,000 x $12.00 bd. ft. per bd. ft. bd. ft. per bd. ft. bd. ft. per bd. ft.

$266,200 $264,000 $288,000

$2,200 U

(Price variance) $24,000 F

(Quantity variance)

$21,800 F

(Total materials variance)

Alternate solution format Price variance = AQ x (AP – SP) = 22,000 board feet x ($12.10 - $12.00) = $2,200 U Quantity variance = (AQ – SQ) x SP = (22,000 - 24,000) board feet x $12.00/board foot = $24,000 F Price variance ..................... $ 2,200 U Quantity variance ............... 24,000 F Total variance ..................... $21,800 F

2. The unfavorable price variance means the actual price paid is more than

the budgeted price. The favorable quantity variance means the actual quantity used is less than the budgeted amount. It appears the company operated with quality materials in an efficient manner at a slightly higher than expected cost.



Exercise 21-9A (25 minutes)

1.

Goods in Process Inventory .................................................... 288,000

Direct Materials Price Variance* ............................................. 2,200

Direct Materials Quantity Variance ................................ 24,000

Raw Materials Inventory ................................................. 266,200

To record the favorable price and quantity variances.

* This price variance can alternatively be computed and recorded when the direct materials are

purchased.

2.

Direct Materials Quantity Variance ......................................... 24,000

Direct Materials Price Variance ...................................... 2,200

Cost of Goods Sold ......................................................... 21,800

To close the unfavorable price and favorable quantity

variances to cost of goods sold.

3. The $24,000 materials quantity variance should be investigated because of

its relatively large magnitude. In particular, this variance is large relative to

the total materials inventory — $24,000/$266,200, or approximately 9% of

inventory purchased.




Information given

Planned units to be produced = 80% x 50,000 capacity = 40,000 units

Planned hours of direct labor = 25,000 hours

Standard hours per unit = 25,000 hours/40,000 units = 0.625 hours per unit

Total standard hrs. for act. production: 35,000 units x 0.625/unit = 21,875 hr.

1. Total overhead planned at 80% level (25,000 direct labor hours)

Predetermined Cost

Cost per Hour

Fixed overhead................................. $ 50,000 $ 2.00

Variable overhead ............................ 275,000 11.00

Total overhead ................................. $325,000 $13.00

2. Total overhead variance

Total actual overhead (given) ..................................................................... $305,000

Applied overhead ($13/hr. x 21,875 hours) ............................................... 284,375

Total overhead variance .............................................................................. $ 20,625 U



Exercise 21-11 (30 minutes) 1. Preliminary variance computations Variable overhead spending and efficiency variances Actual Overhead

AH x AVR

AH x SVR Applied Overhead

SH x SVR

22,000 x $11 21,875 x $11

$ * $242,000 $240,625

$ *

(Spending variance) $ 1,375 U


$ *


Fixed overhead spending and volume variances Actual Overhead Budgeted Overhead Applied Overhead

(Given) 21,875 x $2

$ * $50,000 $43,750

$ *


(Volume variance)

$ *


* Not computable from information given

2. Overhead controllable variance*

Total actual overhead (given) ........................................................... $305,000

Flexible budget overhead Variable ($11/hr. x 21,875 hours) .............................. $240,625 Fixed (given) ............................................................... 50,000 Total .......................................................................................................... 290,625 Overhead controllable variance .................................................................. $ 14,375 U

* Alternative solution approach: We know the overhead controllable variance is equal to the

total overhead variance less the overhead volume variance. Then, using the results from parts 1 and 2, we can compute the overhead controllable variance as

Overhead controllable variance = $20,625 U - $6,250 U = $14,375 U



Exercise 21-12 (25 minutes) 1. Sales price and sales volume variances

Sales Actual Sales Flexible Budget Fixed Budget Units 350 350 365

Price/unit $1,200 $1,100 $1,100

(350 x $1,200) (350 x $1,100) (365 x $1,100) Total $420,000 $385,000 $401,500

$35,000 F

(Sales price variance) $16,500 U

(Sales volume variance)

2. Interpretation

The $35,000 favorable sales price variance implies it sold computers for a higher price than budgeted. The $16,500 unfavorable sales volume variance implies it sold fewer computers than budgeted, perhaps because of the price increase. Exercise 21-13 (10 minutes) a. 4 b. 3 c. 5 d. 2 e. 1

Exercise 21-14 (15 minutes) (1) c (2) a (3) b (4) i (5) e (6) h (7) d (8) f (9) j (10) g

Exercise 21-15 (5 minutes) Following management by exception, the company should focus on those variances that exhibit the greatest differences from the standard. This would likely include the direct materials quantity ($3,000 unfavorable) and direct labor efficiency ($2,200 favorable). Though the fixed overhead volume variance is relatively large ($500 favorable), it merely shows the company operated at a capacity level different than expected.



Exercise 21-16 (25 minutes) Part 1 Direct materials price variance:

Actual cost of direct materials used (16,000 x $4.05) ............................... $ 64,800

Actual quantity used x Standard price (16,000 x $4.00) ........................... 64,000

Direct materials price variance (unfavorable) ........................................... $ 800 Direct materials quantity variance:

Actual quantity used x Standard price (16,000 x $4.00) ........................... $ 64,000

Standard quantity x Standard price (15,000* x $4.00) ............................... 60,000

Direct materials quantity variance (unfavorable) ...................................... $ 4,000 *30,000 units x ½ pound per unit = 15,000 pounds

Part 2 Direct labor rate variance:

Actual hours x Actual rate per hour (5,545 x $19.00***) ........................... $105,355

Actual hours x Standard rate per hour (5,545 x $20.00) ........................... 110,900

Direct labor rate variance (favorable) ......................................................... $ 5,545

Direct labor efficiency variance:

Actual hours x Standard rate per hour (5,545 x $20.00) ........................... $110,900

Standard hours x Standard rate per hour (5,000** x $20.00) .................... 100,000

Direct labor efficiency variance (unfavorable) .......................................... $ 10,900 **30,000 units x 1/6 hour per unit = 5,000 hours ***$105,355/5,545 hours



PROBLEM SET A Problem 21-1A ( 40 minutes)

Part 1 Direct Materials Variances

Direct materials cost variances Actual units at actual cost [1,615,000 lbs. @ $4.10] .......................................... $6,621,500 Standard units at standard cost [1,620,000 lbs. @ $4.00] ................................. 6,480,000 Direct material cost variance............................................................................... $ 141,500 U

Direct Materials Price and Quantity Variances

Actual Cost AQ x AP

AQ x SP


1,615,000 x $4.10 1,615,000 x $4.00 1,620,000 x $4.00

$6,621,500 $6,460,000 $6,480,000

$161,500 U


(Quantity variance)

$141,500 U


Part 2 Direct Labor Variances

Direct labor cost variances Actual units at actual cost [265,000 hrs. @ $13.75] ........................................... $3,643,750 Standard units at standard cost [270,000 hrs. @ $14.00] ................................. 3,780,000 Direct labor cost variance ................................................................................... $ 136,250 F

Direct Labor Rate and Efficiency Variances

Actual Cost AH x AR

AH x SR


265,000 x $13.75 265,000 x $14.00 270,000 x $14.00

$3,643,750 $3,710,000 $3,780,000

$66,250 F



$136,250 F




Problem 21-1A (Continued)

Part 3 Overhead Variances

Controllable variance

Actual overhead [$2,350,000 + $2,200,000] ...............................

$4,550,000

Budgeted overhead [from flexible budget, 90% capacity] ...... 4,560,000

Controllable variance ................................................................. $ 10,000 F

Fixed overhead volume variance

Budgeted fixed overhead [given, at 80% capacity] .................. $2,400,000

Fixed overhead cost applied [270,000 hrs. @ $10] .................. 2,700,000

Fixed overhead volume variance............................................... $ 300,000 F



Problem 21-2AA (15 minutes) (a) Variable overhead

Variable Overhead Spending and Efficiency Variances


AH x SVR


265,000 x $8 270,000 x $8

$2,200,000 $2,120,000 $2,160,000

$80,000 U



$40,000 U


(b) Fixed overhead

Fixed Overhead Spending and Volume Variances


270,000 x $10

$2,350,000 $2,400,000 $2,700,000

$50,000 F


(Volume variance)

$350,000 F


(c) Controllable variance

Variable overhead spending variance ................................... $ 80,000 U

Variable overhead efficiency variance ................................... 40,000 F

Fixed overhead spending variance ........................................ 50,000 F

Total overhead controllable variance .................................... $ 10,000 F



Problem 21-3A (60 minutes)

Part 1

Variable or Fixed Classification

Amount per unit

Variable sales (total divided by 15,000 units)

Sales .................................................................................................. $ 200.00

Variable costs (total divided by 15,000 units)

Direct materials ................................................................................ $ 65.00

Direct labor ....................................................................................... 15.00

Machinery repairs ............................................................................ 4.00

Utilities ($45,000 variable) ............................................................... 3.00

Packaging ......................................................................................... 5.00

Shipping ............................................................................................ 7.00

Total variable costs .......................................................................... $ 99.00

Fixed costs

Depreciation—Plant equipment ...................................................... $ 300,000

Utilities ($195,000 - $45,000 variable) ............................................. 150,000

Plant management salaries ............................................................. 200,000

Sales salary ...................................................................................... 250,000

Advertising expense ........................................................................ 125,000

Salaries ............................................................................................. 241,000

Entertainment expense .................................................................... 90,000

Total fixed costs ............................................................................... $1,356,000




Part 2

PHOENIX COMPANY Flexible Budgets

For Year Ended December 31, 2013

Flexible Budget Flexible Flexible

Variable Amount per Unit

Total Fixed Cost

Budget for Unit Sales of 14,000


Sales ..................................... $200.00 $2,800,000 $3,200,000

Variable costs

Direct materials ................. 65.00 910,000 1,040,000

Direct labor ........................ 15.00 210,000 240,000

Machinery repairs ............. 4.00 56,000 64,000

Utilities ............................... 3.00 42,000 48,000

Packaging .......................... 5.00 70,000 80,000

Shipping ............................. 7.00 98,000 112,000

Total variable costs .......... 99.00 1,386,000 1,584,000

Contribution margin ............ $101.00 1,414,000 1,616,000

Fixed costs

Depreciation—Plant Equip .... $ 300,000 300,000 300,000

Utilities ............................... 150,000 150,000 150,000

Plant mgmt. salaries ......... 200,000 200,000 200,000

Sales salary. ...................... 250,000 250,000 250,000

Advertising expense ......... 125,000 125,000 125,000

Salaries .............................. 241,000 241,000 241,000

Entertainment expense .... 90,000 90,000 90,000

Total fixed costs................ $1,356,000 1,356,000 1,356,000

Income from operations ....... $ 58,000 $ 260,000



Problem 21-3A (Continued) Part 3 Operating income increase for a 15,000 to 18,000 unit sales increase

Possible sales (units) ............................................................... 18,000 Units

Contribution margin per unit ................................................... x $101

Total contribution margin ........................................................ $1,818,000

Less: Fixed costs .................................................................... (1,356,000)

Potential operating income ..................................................... $ 462,000

vs. Budgeted income for 2013 ................................................ 159,000

Increase ..................................................................................... $ 303,000*

*Alternate solution format Unit increase ........................................................................................... 3,000 Units Contribution margin per unit .................................................................. x $101 Increase in contribution margin ............................................................. $303,000

Since there is no increase in fixed costs, the expected increase in operating income is the same $303,000.

Part 4 Operating income (loss) at 12,000 units

Possible sales (units) ............................................................... 12,000 Units

Contribution margin per unit ................................................... x $101


Less: Fixed costs .................................................................... (1,356,000)

Potential operating loss ........................................................... $ (144,000)




Part 1

PHOENIX COMPANY Flexible Budget Performance Report For Year Ended December 31, 2013

Flexible Actual Budget Results Variances*

Sales (18,000 units) .......................... $3,600,000 $3,648,000 $48,000 F

Variable costs

Direct materials .............................. 1,170,000 1,185,000 15,000 U

Direct labor ..................................... 270,000 278,000 8,000 U

Machinery repairs .......................... 72,000 63,000 9,000 F

Utilities ............................................ 54,000 53,000 1,000 F

Packaging ....................................... 90,000 87,500 2,500 F

Shipping ......................................... 126,000 118,500 7,500 F

Total variable costs ....................... 1,782,000 1,785,000 3,000 U

Contribution margin ......................... 1,818,000 1,863,000 45,000 F

Fixed costs

Depreciation—Plant equip. ........... 300,000 300,000 0

Utilities ............................................ 150,000 147,500 2,500 F

Plant management salaries .......... 200,000 210,000 10,000 U

Sales salary .................................... 250,000 268,000 18,000 U

Advertising expense ...................... 125,000 132,000 7,000 U

Salaries ........................................... 241,000 241,000 0

Entertainment expense ................. 90,000 93,500 3,500 U

Total fixed costs............................. 1,356,000 1,392,000 36,000 U

Income from operations .................. $ 462,000 $ 471,000 $ 9,000 F

*F = Favorable variance; and U = Unfavorable variance.



Problem 21-4A (Continued) Part 2 (a) Analysis of sales variance

Total Per unit

Budgeted sales .............................................................. $3,600,000 $200.00

Actual sales .................................................................... 3,648,000 202.67*

Sales variance (favorable) ............................................ $ 48,000 $ 2.67

Interpretation: The sales variance is favorable because the actual price was higher than planned. * (rounded)

(b) Analysis of direct materials variance

Total Per unit

Budgeted materials........................................................ $1,170,000 $ 65.00

Actual materials used .................................................... 1,185,000 65.83

Direct materials variance (unfavorable) ...................... $ 15,000 $ 0.83 Interpretation: The direct materials variance is unfavorable for two possible reasons. (1) The quantity of materials used may have been more than the quantity budgeted, and/or (2) the amount paid for the materials might have been more than the budgeted purchase price.




Part 1


Per unit Amount

Variable costs (total divided by 15,000 units) Indirect materials ............................................................................. $ 3.00 Indirect labor .................................................................................... 12.00 Power ................................................................................................ 3.00 Repairs and maintenance ............................................................... 6.00 Total variable costs ......................................................................... $ 24.00 Fixed costs (per month) Depreciation—Building ................................................................... $ 24,000 Depreciation—Machinery ................................................................ 80,000 Taxes and insurance ....................................................................... 12,000 Supervision ...................................................................................... 79,000 Total fixed costs............................................................................... $195,000

Part 2

ANTUAN COMPANY Flexible Overhead Budgets

For Month Ended October 31



Total Fixed Cost




Variable overhead costs

Indirect materials ............... $ 3.00 $ 39,000 $ 45,000 $ 51,000

Indirect labor ...................... 12.00 156,000 180,000 204,000

Power .................................. 3.00 39,000 45,000 51,000

Repairs and maint. ............. 6.00 78,000 90,000 102,000

Total variable costs............ $24.00 312,000 360,000 408,000

Fixed overhead costs

Depreciation—Building ..... $ 24,000 24,000 24,000 24,000

Depreciation—Mach........... 80,000 80,000 80,000 80,000

Taxes and insurance.......... 12,000 12,000 12,000 12,000

Supervision ........................ 79,000 79,000 79,000 79,000

Total fixed costs ................. $195,000 195,000 195,000 195,000

Total overhead costs ........... $507,000 $555,000 $603,000





Preliminary computations Actual material used: 91,000 lbs. (given) Standard quantity of materials: 15,000 units x 6 lb./unit = 90,000 lb. Actual price: $5.10/lb. (given) Standard price: $5.00/lb. (given)

Direct material cost variances Actual units at actual cost [91,000 lbs. @ $5.10] ..................................... $464,100 Standard units at standard cost [90,000 lbs. @ $5.00] ........................... 450,000 Direct material cost variance .................................................................... $ 14,100 U


Actual Costs AQ x AP

AQ x SP

Standard Costs SQ x SP

91,000 x $5.10 91,000 x $5.00 90,000 x $5.00 lbs. per lb. lbs. per lb. Lbs. per lb.

$464,100 $455,000 $450,000

$9,100 U

(Price variance) $5,000 U

(Quantity variance)

$14,100 U


Alternate solution format Price variance = AQ x (AP – SP) = 91,000 lb. x ($5.10 - $5.00) per lb. = 91,000 lb. x ($0.10) per lb. = $9,100 U Quantity variance = (AQ - SQ) x SP = (91,000 – 90,000) lb. x $5.00 per lb. = 1,000 lb. x $5.00 per lb. = $5,000 U Price variance ..................... $ 9,100 U Quantity variance ................ 5,000 U Total variance ...................... $14,100 U




Part 4 Direct labor variances

Preliminary computations Actual hours used: 30,500 hours (given) Standard hours: 15,000 units x 2 hrs./unit = 30,000 hours Actual rate: $17.25/hr. (given) Standard rate: $17.00/hr. (given) Direct labor cost variances

Actual units at actual cost [30,500 hrs. @ $17.25] ............................................. $526,125 Standard units at standard cost [30,000 hrs. @ $17.00] .................................... 510,000 Direct labor cost variance .................................................................................... $ 16,125 U


Actual Costs AH x AR

AH x SR

Standard Costs SH x SR

30,500 x $17.25 30,500 x $17.00 30,000 x $17.00 hours per hr. hours per hr. hours per hr.

$526,125 $518,500 $510,000

$7,625 U



$16,125 U


Alternate solution format Rate variance = AH x (AR - SR) = 30,500 hours x ($17.25 - $17.00) per hour = 30,500 x $0.25 per hour = $7,625 U Efficiency variance = (AH - SH) x SR = (30,500 – 30,000) hours x $17.00 per hour = 500 hours x $17.00 per hour = $8,500 U Rate variance ...................... $ 7,625 U Efficiency variance ............. 8,500 U Total ..................................... $16,125 U



Problem 21-5A (Concluded) Part 5

ANTUAN COMPANY Overhead Variance Report

For Month Ended October 31

Volume Variance

Expected production level ....................................................... 75% of capacity

Production level achieved ....................................................... 75% of capacity

Volume variance ....................................................................... none Flexible Actual

Controllable Variance Budget Results Variances*


Indirect materials ...................................... $ 45,000 $ 44,250 $ 750 F

Indirect labor ............................................. 180,000 177,750 2,250 F

Power ......................................................... 45,000 43,000 2,000 F

Repairs and maintenance ........................ 90,000 96,000 6,000 U

Total variable costs .................................. 360,000 361,000 1,000 U


Depreciation—Building ............................ 24,000 24,000 0

Depreciation—Machinery ........................ 80,000 75,000 5,000 F

Taxes and insurance ................................ 12,000 11,500 500 F

Supervision ............................................... 79,000 89,000 10,000 U

Total fixed costs ....................................... 195,000 199,500 4,500 U

Total overhead costs ................................. $555,000 $560,500 $ 5,500 U

*F = Favorable variance; and U = Unfavorable variance.



Problem 21-6AA (80 minutes)


Preliminary computations Actual quantity of materials used: 138,000 lb. (given) Standard quantity of materials: 9,000 units x 15 lbs./unit = 135,000 lb. Actual price: $3.75 (given) Standard price: $4.00 (given)

Direct materials cost variances Actual units at actual cost [138,000 lbs. @ $3.75] ........................ $517,500 Standard units at standard cost [135,000 lbs. @ $4.00] .............. 540,000 Direct material cost variance ......................................................... $ 22,500 F


Actual Cost AQ x AP

AQ x SP


138,000 x $3.75 138,000 x $4.00 135,000 x $4.00 lbs. per lb. lbs. per lb. lbs. per lb.

$517,500 $552,000 $540,000

$34,500 F


(Quantity variance)

$22,500 F


Alternate solution format Price variance = AQ x (AP - SP) = 138,000 lb. x ($3.75 - $4.00) per lb. = 138,000 x (-$0.25 per lb.) = $34,500 F Quantity variance = (AQ – SQ) x SP = (138,000 - 135,000) x $4.00 per lb. = 3,000 lb. x $4.00 per lb. = $12,000 U Price variance ..................... $34,500 F Quantity variance ............... 12,000 U Total variance ..................... $22,500 F



Problem 21-6AA (Continued)


Preliminary computations Actual hours: 31,000 hrs. (given) Standard hours: 9,000 units x 3 hrs./unit = 27,000 hrs. Actual rate: $15.10/hr. (given) Standard rate per hour: $15.00 (given)

Direct labor cost variances Actual units at actual cost [31,000 hrs. @ $15.10] .................................. $468,100 Standard units at standard cost [27,000 hrs. @ $15.00] ......................... 405,000 Direct labor cost variance ......................................................................... $ 63,100 U



AH x SR



$468,100 $465,000 $405,000

$3,100 U



$63,100 U


Alternate solution format Rate variance = AH x (AR - SR) = 31,000 hours x ($15.10 - $15.00) per hour = 31,000 x $0.10 per hour = $ 3,100 U Efficiency variance = (AH - SH) x SR = (31,000 - 27,000) hours x $15.00 per hour = 4,000 hours x $15.00 per hour = $60,000 U Rate variance ...................... $ 3,100 U Efficiency variance ............. 60,000 U Total..................................... $63,100 U





(a) Variable overhead

Preliminary computations Actual variable overhead (given): Indirect materials ......................................................... $15,000 Indirect labor ................................................................ 26,500 Power ........................................................................... 6,750 Maintenance ................................................................ 4,000 Total ............................................................................. $52,250

Actual hours: 31,000 (given) Standard hours: 27,000 (from part 2) Standard rate: = =$2.00/hr

Variable overhead cost variances Variable overhead cost incurred [given] ....................................... $52,250 Variable overhead cost applied [27,000 hrs. @ $2/hr.] ................. 54,000 Variable overhead cost variance .................................................... $ 1,750 F



AH x SVR


31,000 x $2.00 27,000 x $2.00 hours per hr. hours per hr.

$52,250 $62,000 $54,000

$9,750 F



$1,750 F


Budgeted variable overhead

Budgeted direct labor hours

$48,000

24,000 hours




(b) Fixed overhead

Preliminary computations Actual fixed overhead (given): Rent of factory building ............................................... $15,000 Depreciation, machinery .............................................. 10,000 Supervisory salaries .................................................... 22,000 Total ............................................................................. $47,000 Budgeted fixed overhead: $44,400 (given) Standard rate: = = $1.85/hr

Fixed overhead cost variances Fixed overhead cost incurred [given] ............................................ $47,000 Fixed overhead cost applied [27,000 hrs. @ $1.85] ...................... 49,950 Fixed overhead cost variance ........................................................ $ 2,950 F


Actual Overhead

Budgeted Overhead Fixed Overhead Applied

27,000 x $1.85 hours per hr.

$47,000 $44,400 $49,950

$2,600 U


(Volume variance)

$2,950 F


(c) Total overhead controllable variance

Variable overhead spending variance ............................................. $9,750 F

Variable overhead efficiency variance ............................................. 8,000 U

Fixed overhead spending variance .................................................. 2,600 U

Total overhead controllable variance .............................................. $ 850 U

Budgeted fixed overhead


$44,400

24,000 hours




Part 4

KEGLER COMPANY Overhead Variance Report For Month Ended May 31

Volume Variance

Expected production level .................................................... 80% of capacity

Production level achieved .................................................... 90% of capacity

Volume variance .................................................................... $5,550 (favorable) Flexible Actual Controllable Variance Budget Results Variances*


Indirect materials ..................................... $16,875 $15,000 $1,875 F

Indirect labor ............................................ 27,000 26,500 500 F

Power ........................................................ 6,750 6,750 0

Maintenance ............................................. 3,375 4,000 625 U

Total variable costs ................................. 54,000 52,250 1,750 F


Rent of factory building .......................... 15,000 15,000 0

Depreciation—Machinery ........................ 10,000 10,000 0

Supervisory salaries ................................ 19,400 22,000 2,600 U

Total fixed costs....................................... 44,400 47,000 2,600 U

Total overhead costs ................................. $98,400 $99,250 $ 850 U

* F = Favorable variance; and U = Unfavorable variance.



Problem 21-7AA (45 minutes)

Part 1

Dec. 31* Goods in Process Inventory .................................................... 100,000

Direct Materials Quantity Variance ......................................... 3,000

Direct Materials Price Variance ..................................... 500


To record materials costs, including

the unfavorable quantity and

favorable price variances.

Dec. 31 Goods in Process Inventory .................................................... 95,800

Direct Labor Rate Variance ..................................................... 1,200

Direct Labor Efficiency Variance ................................... 7,000

Factory Payroll ................................................................ 90,000

To record direct labor costs, including

the favorable efficiency variance and

unfavorable rate variance.

Dec. 31 Goods in Process Inventory .................................................... 354,000

Controllable Variance .............................................................. 9,000

Volume Variance ...................................................................... 12,000

Factory Overhead ........................................................... 375,000

To record overhead costs, including

the unfavorable volume and unfavorable

controllable variances.

* Alternatively, some companies compute and record the price variance when materials are purchased. This would yield two separate entries:

(1) Purchase of materials Raw Materials Inventory .......................................................................... 103,000 Direct Materials Price Variance ......................................................... 500 Accounts Payable............................................................................... 102,500 (2) Issuance of materials into production Goods in Process Inventory .................................................................... 100,000 Direct Materials Quantity Variance .......................................................... 3,000 Raw Materials Inventory ..................................................................... 103,000



Problem 21-7AA (Continued) Part 2 Under management by exception, the manager would first identify the largest

variances, attempt to uncover their causes, and then implement actions aimed

at correcting them. The smaller variances would be tackled after the major

problems were dealt with, if at all.

The largest variance amounts occur for the material quantity variance, the

direct labor efficiency variance, and the two overhead variances. The manager

should go to the production department to find out why the process used

more materials and less labor hours than expected. The controllable variance

would need to be broken down into its components for individual cost items

to see which ones deviated most from expected results.* Based on these

findings, lower-level managers would be called on to explain what happened.

After the relatively larger amounts are explained and actions taken, the

manager can seek explanations of the less significant material price variance

from the purchasing department and the direct labor rate variance from the

personnel department.

* The unfavorable volume variance indicates that the company produced fewer items than expected. Managers would need to determine whether this was because of declining sales, idle time, breakdowns, or other reasons.



PROBLEM SET B Problem 21-1B (50 minutes) Part 1 Direct Materials Variances

Direct materials cost variances Actual units at actual cost [1,000,000 lbs. @ $4.25] .......................................... $4,250,000 Standard units at standard cost [1,050,000 lbs. @ $4.00] ................................. 4,200,000 Direct material cost variance ............................................................................... $ 50,000 U


Actual Cost AQ x AP

AQ x SP


1,000,000 x $4.25 1,000,000 x $4.00 1,050,000 x $4.00

$4,250,000 $4,000,000 $4,200,000

$250,000 U


(Quantity variance)

$50,000 U



Direct labor cost variances Actual units at actual cost [250,000 hrs. @ $7.75] ............................................. $1,937,500 Standard units at standard cost [252,000 hrs. @ $8.00] .................................... 2,016,000 Direct labor cost variance .................................................................................... $ 78,500 F


Actual Cost AH x AR

AH x SR


250,000 x $7.75 250,000 x $8.00 252,000 x $8.00

$1,937,500 $2,000,000 $2,016,000

$62,500 F



$78,500 F




Problem 21-1B (Continued) Part 3 Overhead Variances

Overhead controllable variance

Actual overhead incurred [$1,960,000 + $1,200,000] ................ $ 3,160,000

Budgeted overhead [from flexible budget] ............................... 3,276,000

Controllable overhead cost variance ......................................... $ 116,000 F

Fixed overhead volume variance

Budgeted fixed overhead cost [at 80% capacity] ..................... $ 2,016,000

Fixed overhead cost applied [252,000 hrs. @ $7] ..................... 1,764,000

Fixed overhead cost variance .................................................... $ 252,000 U



Problem 21-2BA (15 minutes)

(a) Variable Overhead Spending and Efficiency Variances


AH x SVR


250,000 x $5 252,000 x $5

$1,200,000 $1,250,000 $1,260,000

$50,000 F



$60,000 F


(b) Fixed Overhead Spending and Volume Variances


252,000 x $7

$1,960,000 $2,016,000 $1,764,000

$56,000 F


(Volume variance)

$196,000 U


(c) Controllable variance

Variable overhead spending variance ................................... $ 50,000 F

Variable overhead efficiency variance ................................... 10,000 F

Fixed overhead spending variance ........................................ 56,000 F

Total overhead controllable variance .................................... $116,000 F



Problem 21-3B (60 minutes) Part 1


Per Unit Amount

Variable sales (total divided by 20,000 units)

Sales .................................................................................................. $ 150.00


Direct materials ................................................................................ $ 60.00

Direct labor ....................................................................................... 13.00

Machinery repairs ............................................................................. 2.85

Utilities (25% variable) ..................................................................... 2.50

Packaging ......................................................................................... 4.00

Shipping ............................................................................................ 5.80

Total variable costs .......................................................................... $ 88.15

Fixed costs

Depreciation—Machinery ................................................................ $ 250,000

Utilities (75% fixed) .......................................................................... 150,000

Plant management salaries ............................................................. 140,000

Sales salary ....................................................................................... 160,000

Advertising expense ........................................................................ 81,000

Salaries .............................................................................................. 241,000

Entertainment expense .................................................................... 90,000

Total fixed costs ................................................................................. $1,112,000



Problem 21-3B (Continued)

Part 2

TOHONO COMPANY Flexible Budgets

For Year Ended December 31, 2013

Flexible Budget Flexible Flexible


Total Fixed Cost



Sales ..................................... $150.00 $2,700,000 $3,600,000

Variable costs

Direct materials ................. 60.00 1,080,000 1,440,000

Direct labor ........................ 13.00 234,000 312,000

Machinery repairs ............. 2.85 51,300 68,400

Utilities ............................... 2.50 45,000 60,000

Packaging .......................... 4.00 72,000 96,000

Shipping ............................. 5.80 104,400 139,200

Total variable ..................... 88.15 1,586,700 2,115,600

Contribution margin ............ $ 61.85 1,113,300 1,484,400

Fixed costs

Depreciation—Mach. .......... $ 250,000 250,000 250,000

Utilities ............................... 150,000 150,000 150,000

Plant mgmt. salaries ......... 140,000 140,000 140,000

Sales salary. ...................... 160,000 160,000 160,000

Advertising expense ......... 81,000 81,000 81,000

Salaries .............................. 241,000 241,000 241,000

Entertainment expense .... 90,000 90,000 90,000

Total fixed costs................ $1,112,000 1,112,000 1,112,000

Income from operations ....... $ 1,300 $ 372,400



Problem 21-3B (Continued) Part 3 Operating income increase for a 20,000 to 28,000 unit sales increase

Potential sales (units) .............................................................. 28,000 Units

Contribution margin per unit ................................................... x $61.85


Less: Fixed costs .................................................................... (1,112,000)

Potential operating income ..................................................... $ 619,800

vs. Budgeted income for 2013 ................................................ 125,000

Potential increase in income ................................................... $ 494,800*

*Alternate solution format Unit increase ............................................................................. 8,000 Units Contribution margin per unit.................................................... x $61.85 Increase in contribution margin ............................................... $494,800 Since there is no increase in fixed costs, the expected increase in operating income is the same $494,800.

Part 4 Operating income (loss) at 14,000 units

Potential sales (units) .............................................................. 14,000

Contribution margin per unit ................................................... x $61.85

Total contribution margin ........................................................ $ 865,900

Less: Fixed costs .................................................................... (1,112,000)

Potential operating loss ........................................................... $ (246,100)



Problem 21-4B (60 minutes)

Part 1

TOHONO COMPANY Flexible Budget Performance Report For Year Ended December 31, 2013

Flexible Actual Budget Results Variances*

Sales (24,000 units) .......................... $3,600,000 $3,648,000 $48,000 F

Variable costs

Direct materials .............................. 1,440,000 1,400,000 40,000 F

Direct labor ..................................... 312,000 360,000 48,000 U

Machinery repairs .......................... 68,400 60,000 8,400 F

Utilities ............................................ 60,000 64,000 4,000 U

Packaging ....................................... 96,000 90,000 6,000 F

Shipping ......................................... 139,200 124,000 15,200 F

Total variable costs ....................... 2,115,600 2,098,000 17,600 F

Contribution margin ......................... 1,484,400 1,550,000 65,600 F

Fixed costs

Depreciation—Machinery .............. 250,000 250,000 0

Utilities ............................................ 150,000 154,000 4,000 U

Plant management salaries .......... 140,000 155,000 15,000 U

Sales salary .................................... 160,000 162,000 2,000 U

Advertising expense ...................... 81,000 104,000 23,000 U

Salaries ........................................... 241,000 232,000 9,000 F

Entertainment expense ................. 90,000 100,000 10,000 U

Total fixed costs............................. 1,112,000 1,157,000 45,000 U

Income from operations .................. $ 372,400 $ 393,000 $20,600 F

*F = Favorable variance; and U = Unfavorable variance



Problem 21-4B (Continued) Part 2 (a) Analysis of sales variance

Total Per unit

Budgeted sales .............................................................. $3,600,000 $150.00

Actual sales .................................................................... 3,648,000 152.00

Sales variance (favorable) ............................................ $ 48,000 $ 2.00 Interpretation: The sales variance is favorable because the actual price was higher than planned.

(b) Analysis of direct materials variance

Total Per unit

Budgeted materials........................................................ $1,440,000 $ 60.00

Actual materials used .................................................... 1,400,000 58.33*

Direct materials variance (favorable) ........................... $ 40,000 $ 1.67

Interpretation: The direct materials variance is favorable for two possible reasons. (1) The quantity of materials used might have been less than the quantity budgeted, and/or (2) the amount paid for the materials might have been less than the budgeted purchase price. * (rounded)



Problem 21-5B (60 minutes)

Part 1


Per Unit Amount


Indirect materials ………………………………… $ 1.50

Indirect labor………………………………… …… 6.00

Power……………………………………………… 1.50

Repairs and maintenance……………………… 3.00

Total variable costs……………………………… $12.00

Fixed costs (per month)

Depreciation—Building………………………… $ 24,000

Depreciation—Machinery……………………… 72,000

Taxes and insurance…………………………… 18,000

Supervision……………………………………… 66,000

Total fixed costs………………………………… $180,000




Part 2

SUNCOAST COMPANY Flexible Overhead Budgets

For Month Ended December 31



Total Fixed Cost





Indirect materials ................... $ 1.50 $ 19,500 $ 22,500 $ 25,500

Indirect labor .......................... 6.00 78,000 90,000 102,000

Power ...................................... 1.50 19,500 22,500 25,500

Repairs and maintenance ...... 3.00 39,000 45,000 51,000

Total variable costs................ $12.00 156,000 180,000 204,000


Depreciation—Building ......... $ 24,000 24,000 24,000 24,000

Depreciation—Machinery ...... 72,000 72,000 72,000 72,000

Taxes and insurance.............. 18,000 18,000 18,000 18,000

Supervision ............................ 66,000 66,000 66,000 66,000

Total fixed costs ..................... $180,000 180,000 180,000 180,000

Total overhead ......................... $336,000 $360,000 $384,000



Problem 21-5B (Continued) Part 3 Direct Materials Variances

Preliminary computations Actual material used: 69,000 lbs. (given) Standard quantity of materials: 15,000 units x 4.5 lb./unit = 67,500 lb. Actual price: $6.10/lb. (given) Standard price: $6.00/lb. (given)

Direct material cost variances Actual units at actual cost [69,000 lbs. @ $6.10] .......................... $420,900 Standard units at standard cost [67,500 lbs. @ $6.00] ................ 405,000 Direct material cost variance ......................................................... $ 15,900 U


Actual Costs AQ x AP

AQ x SP

Standard Costs SQ x SP


$420,900 $414,000 $405,000

$ 6,900 U


(Quantity variance)

$15,900 U


Alternate solution format Price variance = AQ x (AP - SP) = 69,000 lb. x ($6.10 - $6.00) per lb. = 69,000 lb. x ($0.10) per lb. = $ 6,900 U Quantity variance = (AQ – SQ) x SP = (69,000 – 67,500) lb. x $6.00 per lb. = 1,500 lb. x $6.00 per lb. = $ 9,000 U Price variance ..................... $ 6,900 U Quantity variance ............... 9,000 U Total variance ..................... $15,900 U




Part 4 Direct labor variances

Preliminary computations Actual hours used: 22,800 hours (given) Standard hours: 15,000 units x 1.5 hrs./unit = 22,500 hours Actual rate: $12.30/hr. (given) Standard rate: $12.00/hr. (given) Direct labor cost variances

Actual units at actual cost [22,800 hrs. @ $12.30] ............................................. $280,440 Standard units at standard cost [22,500 hrs. @ $12.00] .................................... 270,000 Direct labor cost variance .................................................................................... $ 10,440 U



AH x SR



$280,440 $273,600 $270,000

$6,840 U



$10,440 U


Alternate solution format Rate variance = AH x (AR - SR) = 22,800 hours x ($12.30 - $12.00) per hour = 22,800 x $0.30 per hour = $ 6,840 U Efficiency variance = (AH - SH) x SR = (22,800 – 22,500) hours x $12.00 per hour = 300 hours x $12.00 per hour = $ 3,600 U Rate variance ...................... $ 6,840 U Efficiency variance ............. 3,600 U Total .................................... $10,440 U



Problem 21-5B (Concluded) Part 5

SUNCOAST COMPANY Overhead Variance Report

For Month Ended December 31

Volume Variance

Expected production level ....................................................... 75% of capacity

Production level achieved ....................................................... 75% of capacity

Volume variance ....................................................................... 0 Flexible Actual Controllable Variance Budget Results Variances*


Indirect materials ..................................... $ 22,500 $ 21,600 $ 900 F

Indirect labor ............................................ 90,000 82,260 7,740 F

Power ........................................................ 22,500 23,100 600 U

Repairs and maintenance ....................... 45,000 46,800 1,800 U

Total variable costs ................................. 180,000 173,760 6,240 F


Depreciation—Building ........................... 24,000 24,000 0

Depreciation—Machinery ........................ 72,000 75,000 3,000 U

Taxes and insurance ............................... 18,000 16,500 1,500 F

Supervision .............................................. 66,000 66,000 0

Total fixed costs....................................... 180,000 181,500 1,500 U

Total overhead costs ................................. $360,000 $355,260 $4,740 F

*F = Favorable variance; and U = Unfavorable variance



Problem 21-6BA (80 minutes) Part 1 Direct Materials Variances

Preliminary computations Actual quantity of materials used: 92,000 lb. (given) Standard quantity of materials: 9,000 units x 10 lbs./unit = 90,000 lb. Actual price: $2.95/lb. (given) Standard price: $3.00/lb. (given)

Direct materials cost variances Actual units at actual cost [92,000 lbs. @ $2.95/lb.] ..................... $271,400 Standard units at standard cost [90,000 lbs. @ $3.00/lb.] ............ 270,000 Direct material cost variance .......................................................... $ 1,400 U


Actual Cost AQ x AP

AQ x SP



$271,400 $276,000 $270,000

$4,600 F


(Quantity variance)

$1,400 U


Alternate solution format Price variance = AQ x (AP - SP) = 92,000 lb. x ($2.95 - $3.00) per lb. = 92,000 x (-$0.05 per lb.) = $4,600 F Quantity variance = (AQ - SQ) x SP = (92,000 - 90,000) x $3.00 per lb. = 2,000 lb. x $3.00 per lb. = $6,000 U Price variance ..................... $4,600 F Quantity variance ............... 6,000 U Total variance ..................... $1,400 U



Problem 21-6BA (Continued)


Preliminary computations Actual hours: 37,600 hrs. (given) Standard hours: 9,000 units x 4 hrs./unit = 36,000 hrs. Actual rate: $6.05/hr. (given) Standard rate per hour: $6.00/hr. (given)

Direct labor cost variances Actual units at actual cost [37,600 hrs. @ $6.05/hr.] .................... $227,480 Standard units at standard cost [36,000 hrs. @ $6.00/hr.] .......... 216,000 Direct labor cost variance .............................................................. $ 11,480 U



AH x SR



$227,480 $225,600 $216,000

$1,880 U



$11,480 U


Alternate solution format Rate variance = AH x (AR - SR) = 37,600 hours x ($6.05 - $6.00) per hour = 37,600 x ($0.05) per hour = $ 1,880 U Efficiency variance = (AH – SH) x SR = (37,600 – 36,000) hours x $6.00 per hour = 1,600 hours x $6.00 per hour = $ 9,600 U Rate variance ...................... $ 1,880 U Efficiency variance ............. 9,600 U Total .................................... $11,480 U





(a) Variable overhead

Preliminary computations Actual variable overhead (given): Indirect materials ........................................................ $10,000 Indirect labor .............................................................. 16,000 Power ......................................................................... 4,500 Maintenance ............................................................... 3,000 Total ........................................................................... $33,500

Actual hours: 37,600 (given) Standard hours: 36,000 (from part 2) Standard rate: = = $1.00/hr

Variable overhead cost variances Variable overhead cost incurred [given] ....................................... $33,500 Variable overhead cost applied [36,000 hrs. @ $1.00] ................. 36,000 Variable overhead cost variance.................................................... $ 2,500 F



AH x SVR


37,600 x $1.00 36,000 x $1.00 hours per hr. hours per hr.

$33,500 $37,600 $36,000

$4,100 F



$2,500 F


Budgeted variable overhead


$32,000

32,000 hours




(b) Fixed overhead

Preliminary computations Actual fixed overhead (given): Rent of factory building ............................................... $12,000 Depreciation, machinery .............................................. 19,200 Taxes and insurance .................................................... 3,000 Supervisory salaries .................................................... 14,000 Total ............................................................................. $48,200 Budgeted fixed overhead: $48,000 (given) Standard rate: = = $1.50 / hr

Fixed overhead cost variances Fixed overhead cost incurred [given] ............................................ $48,200 Fixed overhead cost applied [36,000 hrs. @ $1.50] ...................... 54,000 Fixed overhead cost variance ........................................................ $ 5,800 F


Actual Overhead

Budgeted Overhead Fixed Overhead Applied

36,000 x $1.50 hours per hr.

$48,200 $48,000 $54,000

$200 U


(Volume variance)

$5,800 F


(c) Total overhead controllable variance

Variable overhead spending variance ........................................ $4,100 F

Variable overhead efficiency variance ........................................ 1,600 U

Fixed overhead spending variance ............................................. 200 U

Total overhead controllable variance ......................................... $2,300 F

Budgeted fixed overhead


$48,000

32,000 hours



Problem 21-6BA (Concluded)

Part 4

GUADELUPE COMPANY Overhead Variance Report For Month Ended March 31

Volume Variance

Expected production level .......................................... 80% of capacity

Production level achieved .......................................... 90% of capacity

Volume variance .......................................................... $6,000 (favorable) Flexible Actual Controllable Variance Budget Results Variances*


Indirect materials ........................... $11,250 $10,000 $1,250 F

Indirect labor .................................. 18,000 16,000 2,000 F

Power .............................................. 4,500 4,500 0

Maintenance ................................... 2,250 3,000 750 U

Total variable costs ....................... 36,000 33,500 2,500 F


Rent of factory building ................ 12,000 12,000 0

Depreciation—Machinery .............. 20,000 19,200 800 F

Taxes and insurance ..................... 2,400 3,000 600 U

Supervisory salaries ...................... 13,600 14,000 400 U

Total fixed costs............................. 48,000 48,200 200 U

Total overhead costs ....................... $84,000 $81,700 $2,300 F

* F = Favorable variance; and U = Unfavorable variance.



Problem 21-7BA (45 minutes)

Part 1

June 30* Goods in Process Inventory .................................................... 130,000

Direct Materials Quantity Variance ................................ 5,000

Direct Materials Price Variance ..................................... 1,500


To record materials costs, including

the favorable quantity and

favorable price variances.

June 30 Goods in Process Inventory .................................................... 67,500

Direct Labor Rate Variance ..................................................... 500

Direct Labor Efficiency Variance ................................... 3,000

Factory Payroll ................................................................ 65,000

To record direct labor costs, including

the favorable efficiency variance and

unfavorable rate variance.

June 30 Goods in Process Inventory .................................................... 230,000

Controllable Variance .............................................................. 8,000

Volume Variance ...................................................................... 12,000

Factory Overhead ........................................................... 250,000

To record overhead costs, including

the unfavorable volume and unfavorable

controllable variances.

* Alternatively, some companies compute and record the price variance when materials are purchased. This would yield two separate entries:

(1) Purchase of materials Raw Materials Inventory........................................................................... 125,000 Direct Materials Price Variance ......................................................... 1,500 Accounts Payable ............................................................................... 123,500 (2) Issuance of materials into production Goods in Process Inventory .................................................................... 130,000 Direct Materials Quantity Variance .................................................... 5,000 Raw Materials Inventory ..................................................................... 125,000



Problem 21-7BA (Concluded) Part 2 Under management by exception, the manager would first identify the largest

variances, attempt to uncover their causes, and then implement actions aimed

at correcting them. The smaller variances would be tackled after the major

problems were dealt with, if at all.

The largest variance amounts occur for the materials quantity variance, the

materials price variance, the direct labor efficiency variance, and the volume

and controllable overhead variances. The manager should go to the

purchasing department to determine why materials were acquired at a lower

price, and to the production department to find out why the process used less

materials and less labor hours than expected. The controllable variance would

need to be broken down into its components for individual cost items to see

which ones deviated most from expected results.* Based on these findings,

lower-level managers would be called on to explain what happened.

After the relatively larger amounts are explained and actions taken, the

manager can seek explanations of the less significant direct labor rate

variance from the personnel department.

* The unfavorable volume variance indicates that the company produced fewer items

than expected. Managers would need to determine whether this was because of

declining sales, idle time, breakdowns, or other reasons.



SERIAL PROBLEM — SP 21 Serial Problem, Success Systems (30 minutes)

Success Systems Flexible Budget Performance Report

For Quarter Ended June 30


Desk sales (150 units) ............................... $187,500 $186,000 $1,500 U

Chair sales (80 units) .................................

Variable expenses .....................................

40,000

132,500

41,200

132,880

1,200

380

F

U

Contribution margin .................................. 95,000 94,320 680 U

Fixed expenses .......................................... 30,000 31,000 1,000 U

Income from operations ............................ $ 65,000 $ 63,320 $1,680 U


Total budgeted desk sales .......................................................... $180,000

Total units budgeted .................................................................... 144

Budgeted selling price ................................................................ $1,250 per unit

Flexible budget units ................................................................... 150

Flexible budget sales ................................................................... $187,500

Total budgeted chair sales.......................................................... $ 36,000


Budgeted selling price ................................................................ $500 per unit


Flexible budget sales ................................................................... $ 40,000

Total budgeted variable costs for desks ................................... $108,000


Budgeted variable expenses per desk ...................................... $750


Flexible budget variable expenses for desks ........................... $112,500



Serial Problem, Success Systems (concluded)

Total budgeted variable costs for chairs ................................... $18,000


Budgeted variable expenses per chair ...................................... $250


Flexible budget variable expenses for chairs ........................... $20,000

Total budgeted variable expenses* ............................................ $132,500

*($112,500 + $20,000), from calculation above

Total actual expenses .................................................................. $163,880

Actual fixed expenses ................................................................. 31,000

Actual variable expenses ............................................................ $132,880



Reporting in Action — BTN 21-1 1. Polaris reports the annual adjustment (remeasurement adjustment or

translation gains and losses) as a component of Accumulated Other Comprehensive Income in the shareholders’ equity section of its consolidated balance sheet.

2. As reported in its footnote, the assets and liabilities of foreign subsidiaries

(e.g. cash and property, plant and equipment) are translated at exchange rates in effect at the balance sheet date and revenues and expenses are translated at the average foreign exchange rate in effect for each month of the quarter. In addition, transaction gains and losses including intercompany transactions denominated in a currency other than the functional currency of the entity involved are included in “Other income (expense), net” on Polaris’s consolidated statements of income.

Comparative Analysis — BTN 21-2 1. Polaris and Arctic Cat sales figures for the most recent 3 years—data

available from Appendix A—are shown below ($ thousands):

Two Years

Prior

One Year

Prior

Current

Year

One Year

Ahead

Two Years Ahead

Polaris $1,565,887 $ 1,991,139 $2,656,949 _______ _______

27% incr. 33% incr.

Arctic Cat $563,613 $450,728 $464,651 _______ _______

20% decr. 3% incr.

2. Predictions will vary among students. Generally, predictions should

reflect both the trend in the company’s sales data and current industry and economy-wide conditions. Polaris’s sales increased in each of the past two years and the rate of increase was higher in the most recent year. Students may project this increase in sales growth rate as a continuing trend. Arctic Cat’s sales declined from two years prior to one year prior and increased slightly from the prior year to the current year. Students may project that Arctic Cat’s sales will increase slightly over the next two years.



Ethics Challenge — BTN 21-3 A typical answer might include four individuals selected from the following specialty areas (answers will vary among students):

Specialty Information Input and Explanation

Engineer .................................. Scientific support for quantity standard.

Production manager .............. Actual amount or quantity used in production.

Supplier ................................... Identify reasonable price of inputs.

Purchasing manager ............. Identify reasonable price of inputs.

Market research analyst ........ Market research to support quantity and price standards.

The ethical challenge for a manager responsible for setting and/or revising standards is to select the right individuals for the team and to purposely avoid biases in establishing the standards.

Communicating in Practice — BTN 21-4

MEMORANDUM TO: FROM: DATE: SUBJECT:

Variance Cost of Goods Sold Gross Margin

Part 1. Favorable Decrease Increase

Part 2. Unfavorable Increase Decrease Part 3. A favorable (unfavorable) variance means that actual costs are

lower (higher) than the budgeted or expected amounts. It also helps to point out the link between a favorable (unfavorable) variance and an increase (decrease) in gross margin and net income.



Taking It to the Net — BTN 21-5 1. Benchmarking is a method whereby organizations try to look to other

organizations to identify “best practices” so as to improve and attain

superior performance. A benchmark can also be considered as a standard

that an organization wishes to achieve in the future. It is important to note

that the actual standard may be increasing (i.e., the bar becomes higher

and higher) as firms improve their processes.

2. Given that a benchmark can be considered as a standard, companies

should analyze the costs associated with achieving the benchmark figure.

Firms can then compare their current cost levels with the benchmark cost

so as to identify the potential for cost savings.

Teamwork in Action — BTN 21-6

Answers will vary depending on the two industries selected. Two examples

are identified and briefly described below:

i. Overnight delivery services: 10 a.m. delivery, late-day drop-off, pick-up

service, tracking systems, fast-moving workforce.

ii. Hotel services: clean rooms, fast check-in, fast/in-room check-out, luggage

delivered to room quickly, immediate room service.



Entrepreneurial Decision — BTN 21-7 To: Mike McCabe, President

Folsom Custom Skis

Re: Management Accounting Quote Interpretations

Quote 1: “Variances are not explanations”

The author of this quote is emphasizing that variances are only a starting

point in controlling production operations. Management must look beyond

the variances to understand why they occurred.

Quote 2: “Management’s goal is not to minimize variances.”

The author of this quote understands that the real objective of management is

to maximize the value of the firm for the stakeholders. For example, it might

not be wise to focus solely on minimizing the direct material price variance if

such a focus would impair product quality. Usually, it is not advisable to trade

off product quality in order to reduce costs.



Hitting The Road — BTN 21-8 1. A typical cheese pizza has three main raw materials: dough, sauce, and

cheese. 2. Observe that the national chain probably follows specific measurement

rules for each of the three items. In contrast, the local business is usually less strict in these guidelines, especially for the sauce and cheese components.

3. These observations reflect an important issue for pizza businesses and for

smaller, local businesses in particular. Excess raw materials applied to food products may not be desirable to many customers. Also, materials such as cheese increase the costs of products. These simple observations often capture the most important components that determine the profits of a business and its ultimate survival.

Global Decision — BTN 21-9

1. Piaggio’s sales figures for the most recent 2 years — data available from its Website — are shown below (€ thousands)

Sales

One Year Prior

Current Year

One Year Ahead

Two Years Ahead

Piaggio .......................... €1,485,351 €1,516,463 _______ _______

2.1% increase from prior year

2. Predictions will vary among students. Generally, predictions should reflect

both the trend in the company’s sales data and current industry and economy-wide conditions. Piaggio’s sales increased at a rate of 2.1% relative to the prior year. Students may predict this sales growth rate to continue.

finman chapter 21 sm - departamento de...

Documents