ACTG 1P12 Lecture Notes - Lecture 19: Deutsche Luft Hansa, Fixed Cost, Variable Cost

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16 Apr 2018

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Budgetary control: a major function of management is to control operations, takes place by means of budget reports which compare actual results with planned objectives, provides management with feedback on operations. Static budget reports: static budgets present information for only one level of activity (e. g. sales, always compares actual results with the budget data at the activity level used in the. Flexible budgets: projects budget data for various levels of activity, essentially, a series of static budgets at different activity levels, adapts to changes in operating conditions. Raney company uses a flexible budget for manufacturing overhead that is based on direct labor hours. The variable manufacturing overhead costs per direct labor hour are as follows: Fixed overhead costs per month are as follows: supervision ; depreciation ; property taxes . The company believes it will normally operate in range of 7000 to 10000 direct labor hours per month.

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I need some feedback if these are correct.
1.
A flexible budget is a budget that:
A) is updated with actual costs as they occur during theperiod.
B) is updated to reflect the actual level of activity during theperiod.
C) is prepared using a computer spreadsheet application.
D) contains only variable production costs.
2.
Ofarrell Snow Removal's cost formula for its vehicle operating costis $1,840 per month plus $377 per snow-day. For the month ofNovember, the company planned for activity of 14 snow-days, but theactual level of activity was 19 snow-days. The actual vehicleoperating cost for the month was $9,280. The vehicle operating costin the flexible budget for November would be closest to:
A) $9,003
B) $7,118
C) $9,280
D) $9,660
3.
Entler Framing's cost formula for its supplies cost is $2,250 permonth plus $16 per frame. For the month of June, the companyplanned for activity of 502 frames, but the actual level ofactivity was 497 frames. The actual supplies cost for the month was$10,580. The supplies cost in the planning budget for June would beclosest to:
A) $10,580
B) $10,282
C) $10,686
D) $10,202
4.
Johannsen Catering uses two measures of activity, jobs and meals,in the cost formulas in its budgets and performance reports. Thecost formula for catering supplies is $310 per month plus $103 perjob plus $23 per meal. A typical job involves serving a number ofmeals to guests at a corporate function or at a host's home. Thecompany expected its activity in February to be 28 jobs and 187meals, but the actual activity was 26 jobs and 192 meals. Theactual cost for catering supplies in February was $7,620. Thecatering supplies in the flexible budget for February would beclosest to:
A) $7,495
B) $7,404
C) $7,620
D) $6,960
5.
Kimbril Catering uses two measures of activity, jobs and meals, inthe cost formulas in its budgets and performance reports. The costformula for catering supplies is $530 per month plus $91 per jobplus $12 per meal. A typical job involves serving a number of mealsto guests at a corporate function or at a host's home. The companyexpected its activity in January to be 27 jobs and 174 meals, butthe actual activity was 31 jobs and 173 meals. The actual cost forcatering supplies in January was $5,330. The activity variance forcatering supplies in January would be closest to:
A) $255 F
B) $255 U
C) $352 F
D) $352 U
6.
Lapinsky Air uses two measures of activity, flights and passengers,in the cost formulas in its budgets and performance reports. Thecost formula for plane operating costs is $31,400 per month plus$2,148 per flight plus $7 per passenger. The company expected itsactivity in April to be 89 flights and 261 passengers, but theactual activity was 84 flights and 260 passengers. The actual costfor plane operating costs in April was $204,810. The spendingvariance for plane operating costs in April would be closestto:
A) $8,842 U
B) $19,589 F
C) $19,589 U
D) $8,842 F
7.
Velten Corporation's flexible budget performance report for lastmonth shows that actual indirect materials cost, a variable cost,was $45,198 and that the spending variance for indirect materialscost was $9,114 favorable. During that month, the company worked18,600 machine-hours. Budgeted activity for the month had been19,000 machine-hours. The cost formula per machine-hour forindirect materials cost must have been closest to:
A) $1.90
B) $2.86
C) $1.94
D) $2.92
8.
Which of the following comparisons best isolates the impact thatchanges in prices of inputs and outputs have on performance?
A) static planning budget and flexible budget
B) static planning budget and actual results
C) flexible budget and actual results
D) master budget and static planning budget
9.
The excess or deficiency of cash available over disbursements onthe cash budget is calculated as follows:
A) The beginning balance less the expected cash receipts less theexpected cash disbursements.
B) The cash available less the expected cash receipts plus theexpected cash disbursements.
C) The beginning balance plus the expected cash receipts less theexpected cash disbursements.
D) None of the above.
10.
There are various budgets within the master budget. One of thesebudgets is the production budget. Which of the following BESTdescribes the production budget?
A) It details the required direct labor hours.
B) It details the required raw materials purchases.
C) It is calculated based on the sales budget and the desiredending inventory.
D) It summarizes the costs of producing units for the budgetperiod.
1.B
2.A
3.A
4.C
5.D
6.C
7.A
8.B
9.A
10.C

magentabat295

Consider the following information from Grantham Company,then see the instructions that
follow.

Grantham Company manufactures dog whistles. The followinginformation is available from
the budgetary control system for 2016, and was used to createthe master budget. Grantham
applies overhead using an activity index of direct laborhours.

	Variable Costs	Rate per direct labor hour
	Indirect labor	$0.52
	Indirect materials	0.36
	Factory utilities	0.88
	Factory repairs	0.48

	Fixed Costs	Amount per year
	Depreciation	$25,300
	Insurance	9,300
	Property taxes	5,800
	Supervision	61,500

The master overhead budget was prepared with the expectationthat 462,000 direct labor
hours would be worked during the year. In August, 39,500 directlabor hours were worked.
At that level of activity, actual costs were as shown below:

	Variable Costs
	Indirect labor	$0.54	per labor hour
	Indirect materials	0.34	per labor hour
	Factory utilities	0.91	per labor hour
	Factory repairs	0.53	per labor hour

	Fixed Costs
	Depreciation	$2,108
	Insurance	825
	Property taxes	500
	Supervision	5,250

Instructions:
Prepare a monthly manufacturing overhead flexible budget,assuming production levels
ranging from 30,000 to 45,000 direct labor hours, in incrementsof 5,000.

Prepare a budget report for August comparing actual results tothe flexible budget. Explain
whether costs were successfully controlled and how you cantell.

THIS ASSIGNMENT MUST BE COMPLETED IN EXCEL. You should developan efficient and
customizable production cost report, using formulas wheneverpossible instead of keyed in
values. No numeric values except the ones shown above shouldneed to be keyed in.

skycamel85

Several years ago, Westmont Corporation developed acomprehensive budgeting system for planning and control purposes.While departmental supervisors have been happy with the system, thefactory manager has expressed considerable dissatisfaction with theinformation being generated by the system.

A typical departmental cost report for a recent periodfollows:

Assembly Department Cost Report For the Month Ended March 31
	Actual Results		Planning Budget		Variances
Machine-hours		50,000		55,000
Variable costs:
Supplies	$	48,950	$	52,250	$	3,300	F
Scrap		32,400		33,000		600	F
Indirect materials		82,800		88,000		5,200	F
Fixed costs:
Wages and salaries		89,250		90,000		750	F
Equipment depreciation		70,000		70,000		â
Total cost	$	323,400	$	333,250	$	9,850	F

After receiving a copy of this cost report, the supervisor ofthe Assembly Department stated, âThese reports are super. It makesme feel really good to see how well things are going in mydepartment. I canât understand why those people upstairs complainso much about the reports.â

For the last several years, the companyâs marketing departmenthas chronically failed to meet the sales goals expressed in thecompanyâs monthly budgets.

Required:

1. The companyâs president is uneasy about the cost reports,what can be the reason? (You may select more than oneanswer. Single click the box with the question mark to produce acheck mark for a correct answer and double click the box with thequestion mark to empty the box for a wrong answer.)

	Cost reports are ineffective sincebudgeted costs at one level of activity are compared to actualcosts at another level of activity.
	Cost reports show whether fixedcosts are controlled and do not show whether variable costs arecontrolled.
	Cost reports are effective sincebudgeted costs at one level of activity are compared to actualcosts at another level of activity.
	Cost reports show whether fixedcosts and variable costs are controlled.

2. What kind of reports should be used to give better insightinto how well departmental supervisors are controlling costs?

	Flexible budget performance reportsmust be used
	Fixed budget performance reportsmust be used

3. Complete the new performance report for the quarter, based onFlexible Budget Performance approach. (Indicate the effectof each variance by selecting "F" for favorable, "U" forunfavorable, and "None" for no effect (i.e., zero variance). Inputall amounts as positive values.)

4. Were costs well controlled in March?

chocolateworm132

ACTG 1P12 Lecture Notes - Lecture 19: Deutsche Luft Hansa, Fixed Cost, Variable Cost

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