ACCT-422 Lecture Notes - Lecture 3: Fixed Cost, Variable Cost
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Use with Excel | |||||||||||||
The TV Corporation manufactures 2 types of TVs. The Basic TV | |||||||||||||
and the Deluxe TV. Budgeted and actual annual operating data areas follows: | |||||||||||||
Static Budget | Basic | Deluxe | Total | ||||||||||
Number units Sold | 60,000 | 40,000 | 100,000 | ||||||||||
Total Contribution Margin | $3,480,000 | $3,444,000 | $6,924,000 | ||||||||||
Budgeted CM per unit | $58.00 | $86.10 | |||||||||||
Actual Results | |||||||||||||
Number units sold | 59,850 | 45,150 | 105,000 | ||||||||||
Total Contribution Margin | $3,650,850 | $3,612,000 | $7,262,850 | ||||||||||
But, the actual industry volume was | 300,000 | Units | |||||||||||
Prior to the beginning of the year, a consulting firm estimatedthe total volume | |||||||||||||
for volume of the Basic and Deluxe industry category to be | 310,000 | Units | |||||||||||
Required: | |||||||||||||
Calculate the following information and variances on theworksheet entitled analysis. I have tried to give some helpfulhints. | |||||||||||||
Use the contribution margin approach in the following salesvariance analysis that follows. | |||||||||||||
a. Calculate the Static-budget variance. | I have tried to set up a model to use on the analysisworksheet. | Look at Exhibit 14-11 p.571 | |||||||||||
b. Calculate the contribution margin for the flexiblebudget. | |||||||||||||
c. Calculate the flexible budget variance. | |||||||||||||
d. Calculate the sales-volume variance. | |||||||||||||
e. Compute the actual sales-mix | |||||||||||||
f. Compute the budgeted sales-mix | |||||||||||||
g . Compute the sales-mix variance for each product andthen the total sales-mix variance like the table shown onpage 572. I have set up the table for you to fill in. | |||||||||||||
h. Compute the sales-quantity variance by type of machine andtotal | |||||||||||||
if total actual quantity is greater than total budgeted unitsthe sales-quantity will always be F and the opposite will occurwhen actual is less than budgeted). | |||||||||||||
i. Compute the market-share variance | |||||||||||||
j. Compute the market-size variance. | 4 | ||||||||||||
k. Comment on the results of the above variance analysis. Makesure your comments identify specific variances and | |||||||||||||
the impact of these variances on income. |
Do not forget to use the IF function to determine if thevariance is favorable or unfavorable. | ||||||
I used a formula approach like the author did and I expecteveryone to use cell references and use the Problem 2 worksheet asyour data for cell references. | ||||||
I will take off 5 pts. if you have not used cell references fromthe problem 2 worksheet as your reference for the calculations. Iwill take off 3 pts. for not using IF statements or 1/2 each. | ||||||
When you are adding multiple variances, either use the SUMIFfunction or a nested IF. | ||||||
Also, make sure you are using ABS function, since variancesshould not be positive and negative. | ||||||
I have color coded some areas that should match, since you canuse these variances to check your work since they should equal eachother. | ||||||
Comments in "K" are worth 1 pt. You need to clearly identifymultiple sales variance you have calculated and the impact inincome. | ||||||
a. Calculate the Static-budget variance. | $338,850 | F | ||||
Static Budgeted Variance =Actual total contribution margin lessStatic total Contribution margin | ||||||
Look at level 1 in Panel C in exhibit 14-11. | ||||||
b. Calculate the contribution margin for the flexiblebudget. | ||||||
Basic | Deluxe | Total | ||||
Budgeted contribution margin per unit | $58 | $86 | Do not Total | |||
Actual Number of units sold | Do not Total | |||||
Flexible -Budget Contribution Margin | ||||||
c. Calculate the flexible budget variance. | ||||||
d. Calculate the sales-volume variance. | ||||||
Check Figure: static budget variance=flexible budget | ||||||
variance+Sales volume Variance | ||||||
Basic | Deluxe | |||||
e. Calculate the Actual sales mix: | ||||||
f. Calculate the Budgeted sales mix: | ||||||
g . Compute the sales-mix variance for each product and then thetotal sales-mix variance like the table shown on page 572. I haveset up the table for you to fill in. | ||||||
Actual Units of All products sold | (Actual sales-mix%-Budgeted Sales Mix% | Budgeted Contribution Margin per unit | Sales-Mix Variance | |||
Basic | ||||||
Deluxe | ||||||
g. Total Sales mix variance | ||||||
Compute the sales-quantity variance by type of product andtotal. | ||||||
Basic | ||||||
Deluxe | ||||||
h. Total Sales quantity variance | ||||||
Check Figure: Sales-volume variance=Sales mixvariance+Sales Quantity Variance | ||||||
Calculate the Actual market share: | ||||||
Calculate the Budgeted market share: | ||||||
Calculate the budgeted contribution margin | ||||||
per composite unit of budgeted mix | ||||||
Lastly: | ||||||
I. Market-share Variance | ||||||
j. Compute the market-size variance. | ||||||
Check Figure: Sales-quantity variance=Market-sharevariance+Market size Variance | ||||||
k. Comment on the results of the above variance analysis. Makesure your comments identify specific variances and the impact ofthese variances on income. | ||||||
1)The opportunity cost ofmaking a component part in a factory with no excess capacity isthe:
net benefit foregone fromthe best alternative use of the capacity required. | |
total manufacturing costof the component. | |
fixed manufacturing costof the component. | |
variable manufacturingcost of the component. |
2) A company has astandard cost system in which fixed and variable manufacturingoverhead costs are applied to products on the basis of directlabor-hours. A fixed manufacturing overhead volume variance willnecessarily occur in a month in which there is a fixedmanufacturing overhead budget variance.
True | |
False | |
3) Todco planned toproduce 3,000 units of its single product, Teragram, duringNovember. The standard specifications for one unit of Teragraminclude six pounds of material at $0.30 per pound. Actualproduction in November was 3,100 units of Teragram. The accountantcomputed a favorable materials purchase price variance of $380 andan unfavorable materials quantity variance of $120. Based on thesevariances, one could conclude that:
more materials were usedthan were purchased. | |
more materials werepurchased than were used. | |
the actual usage ofmaterials was less than the standard allowed. | |
the actual cost ofmaterials was less than the standard cost. |
4)The cost of a resourcethat has no alternative use in a make or buy decision problem hasan opportunity cost of zero.
True | |
False |
5)An unfavorable directlabor efficiency variance could be caused by:
an unfavorable variableoverhead rate variance. | |
a favorable materialsquantity variance. | |
an unfavorable materialsquantity variance. | |
a favorable variableoverhead rate variance. |
6) The fixed manufacturingoverhead volume variance will be unfavorable if production volumeis less than sales volume.
True | |
False |
7) If by dropping aproduct a firm can avoid more in fixed costs than it loses incontribution margin, then the firm is better off economically ifthe product is dropped.
True | |
False |
8) Joint costs are notrelevant to the decision to sell a product at the split-off pointor to process the product further.
True | |
False |
9) When a company has aproduction constraint, the product with the highest contributionmargin per unit of the constrained resource should be given highestpriority.
True | |
False |
10) An avoidable cost is acost that can be eliminated (in whole or in part) as a result ofchoosing one alternative over another.
True | ||
False | ||
11) The Malcolm Companyuses a standard cost system in which manufacturing overhead costsare applied to products on the basis of standard direct labor-hours(DLHs). The standards call for 4 hours of direct labor per unitproduced. The following data pertain to the company's manufacturingoverhead for the month of July: |
Actual fixedmanufacturing overhead costs incurred | $28,460 | |
Denominatoractivity | 6,305 | DLHs |
Number ofunits produced | 3,000 | units |
Budgetvariance | $3,240 | Unfavorable |
The Fixed component ofthe predetermined overhead rate for June is: (Round your answer to 2 decimal places.) |
$4.00 | |
$4.77 | |
$4.51 | |
$4.11 |