SMG AC 222 Lecture Notes - Lecture 9: Variable Cost, Earnings Before Interest And Taxes

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5 Aug 2016

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Because actual activity level may different from planned activity level. The nature of flexible budget is to either make the cost formula the same with planned budget or activity level the same with actual result. Otherwise, we are comparing apples to oranges: activity variances is the difference between flexible budget and planned budget. Revenue and spending variance is the difference between actual results and flexible budget. The difference can be either positive or negative. When you get positive earnings, it is favorable. When you get positive loss (expense), it is unfavorable. After knowing which expense costs you most, you can fix it by either eliminating this cost or cutting down some variable cost. Too much positive variance and too much negative variance have double sides: example from book problem 9-21 (1) (2)-(1) (2) (3)-(2) (3)

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

Stevens Center is a nonprofit organization devoted its stagingplays for children. The theater has a very small
full-time professional administrative staff. Through a specialarrangement with the actors' union, actors
and directors rehearse without pay and are paid only for actualperformances.

The costs from the current year's planning budget appear below.Steven Center had tentatively planned to put
on six different productions with a total of 108 performances.For example, one of the productions was The Lion King,
which has a six-week run with three performances on eachweekend.

Stevens Center
Costs from the Planning Budget
For the Year Ended December 31
Budgeted number of productions	6
Budgeted number of performances	108
Actors' and directors' wages	$215,000
Stagehands' wages	31,900
Ticket booth personnel and ushers' wages	16,400
Scenery, costumes, and props	107,900
Theater hall rent	53,000
Printed programs	26,800
Publicity	12,200
Administrative expense	44,200
Total	$507,400

Some of the costs vary with the number of productions, some withthe number of performances, and
some are fixed and depend on neither the number of productionsnor the number of performances.
The costs of scenery, costumes, props, and publicity vary withthe number of productions.
It doesn't make any differences how many times The Lion King isperformed, the cost of the
scenery is the same. Likewise, the cost of publicizing a playwith posters and radio commericals is the
same whether there are 10,20 or 30 performances of the play. Onthe other hand, the wages of
the actors, directors, stagehands, ticket booth personnel, andushers vary with the number of
perofrmances. The greater the number of performances, the higherthe wage costs will be. Similarily,
the costs of renting the hall and printing the programs willvary with the number of performances.
Administrative expenses are more difficult to pin down, but thebest estimate is that approximately
75% of the budgeted costs are fixed, 15% depend on the number ofproductions staged, and the
remaining 10% depend on the number of performances.

After the beginning of the year, the board of directors of thetheater authorized expanding the
theater's program to seven productions and a total of 168performances. Not surprisingly, actual
costs were considerably higher than the costs from the planningbudget. (Grants from donors
and ticket sales were also correspondingly higher, but are notshown here.) Data concerning the
actual costs appear below:

Stevens Center
Costs from the Planning Budget
For the Year Ended December 31
Actual number of productions	7
Actual number of performances	168
Actors' and directors' wages	$341,600
Stagehands' wages	49,500.00
Ticket booth personnel and ushers' wages	25,800.00
Scenery, costumes, and props	130,700.00
Theater hall rent	78,100.00
Printed programs	38,400.00
Publicity	15,200.00
Administrative expense	47,100.00
Total	$726,400

1. Prepare a flexible budget for the Stevens Center based on theactual activity of the year.


























2. Prepare a flexible budget performance report for the yearthat shows both spending variance
and activity variances.
Stevens Theater
Flexible Budget Performance Report
For the Year Ended December 31
	Actual Results	Spending Variances	Flexible Budget	Activity Variances	Planning Budget

Actual number of productions	7
Actual number of performances	168
Actors' and directors' wages	$341,600
Stagehands' wages	49,500.00
Ticket booth personnel and ushers' wages	25,800.00
Scenery, costumes, and props	130,700.00
Theater hall rent	78,100.00
Printed programs	38,400.00
Publicity	15,200.00
Administrative expense	47,100.00
Total	$726,400













3. If you were on the board of directors of the theater, wouldyou be pleased with how
costs were controlled during the year? Why or why not?















4. The cost formula provide figures for the average cost perproduction and average cost per performance.
How accurate do you think these figures would be for predictingthe cost of a new production or of an additiional performance of aparticular production?

byzantiumgnu658

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

SMG AC 222 Lecture Notes - Lecture 9: Variable Cost, Earnings Before Interest And Taxes

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