ACCT-422 Lecture Notes - Lecture 3: Fixed Cost, Variable Cost

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9 Dec 2016

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The sales quantity variance indicates an increase (or decrease) in profit as a result of selling more or less product in total based on (budgeted) standard mix. What are the specific responsibilities of each department and how did each do in relation to the specific responsibilities identified? (alignmnet) Breaking the sales volume variance into components identified: The sales mix variance indicates an increase (or decrease) in profit as a result of selling proportionality more (or less) of our more profitable products than we had originally planned. The sales quantity variance indicates an increase (or decrease) profit as a result of selling more (or less) product in total based on (budgeted) standard mix. Other variable cost variances: provide an accurate forecast, manage demand, coordinate with production. Production is responsible for: plan production based on the forecast, execute production as planned, adapt to activity not forecast, coordinate with sales.

Related Questions

I just need to reference numbers for the calculations

how to send my question with excel attachment ?

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.

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.

cerisecricket295

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

peachmosquito810

All of the following are advantages of decentralizationexcept:

to improve customer relations.

to encourage use of expert knowledge.

to increase employee motivation.

to allow goal congruence to be achieved more easily.

All of the following are responsibility centersexcept:

profit centers.

investment centers.

customer centers.

cost centers.

3. Thedifferences between actual and budgeted figures are known as:

fluctuations.

variances.

overages.

underages.

4. Which of thefollowing is a performance measure commonly used to assess theperformance of investment centers?

Return on investment

Profit margin

Current ratio

Gross income

5. Residualincome is calculated as:

revenues less expenses.

contribution margin less minimum acceptable income.

operating income less minimum acceptable income.

sales less variable costs.

6. Which of thefollowing is NOT a strategy for determining the transfer price of aproduct?

Related party discounted price

Market price

Cost or cost-plus a markup

Negotiated price

7. Employeecapabilities, information system capabilities, and the companyâsâclimate for actionâ are important factors of the:

employee perspective.

customer perspective.

internal business perspective.

learning and growth perspective.

8. AssumeCucumber Company expects each division to earn an 8% target rate ofreturn. Assume the Companyâs Pickle Division had the followingresults:

Sales $24,500,000

Operatingincome 1,250,000

Totalassets 15,500,000

The Divisionâs ROI is:

8.1%.

15.8%.

5.1%.

8.0%.

Assume Ametrine Company expects each division to earn an 8%target rate of return. Assume the Companyâs Division A had thefollowing results:

Sales $24,500,000

Operatingincome 1,250,000

Totalassets 15,500,000

The Divisionâs RI is:

â$10,000.

$10,000.

â$710,000.

$710,000.

10. Which of the followingare examples of KPIs?

Average customer satisfaction ratings

Number of repeat customers

Sales revenue growth

All of the above are examples of KPIs

Which of the following is NOT an advantage of using standardcosts and variances?

Use as a performance benchmark for evaluation of actualcosts

Use as a basis for components of the master budget

Simplification of bookkeeping

Change in behavior of managers to obtain desired variances

One level of a companyâs flexible budget was prepared forproduction of 8,000 units. Total costs were $38,000 and includeddirect materials, direct labor, and variable overhead at $1.50,$2.50, and $0.50 per unit respectively. What is the total cost ofproduction of 8,500 units?

$ 2,000

$38,000

$38,250

$40,250

3. The directlabor price variance was unfavorable and much greater thananticipated. Who would be in the best position to explain why theunfavorable variance occurred?

Both the production and human resource supervisors

The production supervisor

The purchasing manager

Both the purchasing manager and production supervisor

4. A managerpurchased better quality materials for a slightly higher cost thananticipated. However, as a result, there was less spoilage thannormal. What is the effect on the price and quantity variancesrespectively?

Favorable, favorable

Favorable, unfavorable

Unfavorable, favorable

Unfavorable, unfavorable

5. Acompany uses a single raw material in its production process. Thestandard price for a unit of material is $2.00. During the monththe company purchased and used 600 units of this material at aprice of $2.25 per unit. The standard quantity required perfinished product is 2 units and during the month, the companyproduced 310 finished units. How much was the material pricevariance?

$150 favorable

$150 unfavorable

$155 favorable

$155 unfavorable

6. Acompany uses a single raw material in its production process. Thestandard price for a unit of material is $2.00. During the monththe company purchased and used 600 units of this material at aprice of $2.25 per unit. The standard quantity required perfinished product is 2 units and during the month, the companyproduced 310 finished units. How much was the material quantityvariance?

$40 favorable

$40 unfavorable

$45 favorable

$45 unfavorable

7. Acompany produced 2,200 units of output during a production processthat normally requires 2 hours of labor per unit of output. Thestandard labor rate is $16 per hour, but the company paid $15 perhour. Actual hours needed to complete the production process were4,600. How much was the labor efficiency variance?

$3,000 favorable

$3,000 unfavorable

$3,200 favorable

$3,200 unfavorable

8. Acompany produced 2,200 units of output during a production processthat normally requires 2 hours of labor per unit of output. Thestandard labor rate is $16 per hour, but the company paid $15 perhour. Actual hours needed to complete the production process were4,600. How much was the labor rate variance?

$4,400 favorable

$4,400 unfavorable

$4,600 favorable

$4,600 unfavorable

9. Which of thefollowing formulas is used to compute variable overheadrate (or spending) variance?

actual hours Ã (actual rate â standard rate)

standard hours allowed Ã (actual rate â standard rate)

actual rate Ã (actual hours â standard hours allowed)

standard rate Ã (actual hours â standard hours allowed)

10. Which of the followingis a true statement regarding fixed overhead volume variance?

If production volume is less than anticipated, then fixedoverhead has been underallocated and the fixed overhead volumevariance is favorable.

If production volume is less than anticipated, then fixedoverhead has been underallocated and the fixed overhead volumevariance is unfavorable.

If production volume is greater than anticipated, then fixedoverhead has been underallocated and the fixed overhead volumevariance is favorable.

If production volume is greater than anticipated, then fixedoverhead has been overallocated and the fixed overhead volumevariance is unfavorable.

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ACCT-422 Lecture Notes - Lecture 3: Fixed Cost, Variable Cost

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