ACCT 2301 Chapter Notes - Chapter 8: Gamesmanship, Fixed Cost, Variable Cost

65 views4 pages

periwinkledinosaur391

3 Apr 2016

School

Northeastern University

Department

Accounting

Course

ACCT 2301

Professor

Ed Dinan

For unlimited access to Textbook Notes, a Class+ subscription is required.

Document Summary

Estimates for the expected sales price and per unit costs for the trophies are called standard prices and costs. Differences between the standard and actual amounts are called variances. When actual sales revenue is greater than expected (planned) a company has a favorable sales variance and vice versa. The amount of a sales volume variance is the difference b/w the static budget and a flexible budget based on actual volume. For performance evaluation, management compares actual results to a flexible budget based on the actual volume of activity. When the actual results and the flexible reflect the same volume of activity, the variances in revenues and variable costs result from differences between standard and actual per unit amounts. Flexible budget=standard per unit amount * actual volume of production. Actual results=actual per unit sales price*actual volume of activity. Differences b/w the flexible budget figures and actual results are the flexible budget variances.

Related Questions

Problem 16-46 Solve for Master Budget Given Actual Results (LO16-2, 4)

A new accounting intern at Gibson Corporation lost the only copyof this period's master budget. The CFO wants to evaluateperformance for this period but needs the master budget to do so.Actual results for the period follow:


Sales volume		130,000	units
Sales revenue	$	873,600
Variable costs
Manufacturing		192,192
Marketing andadministrative		78,624
Contribution margin	$	602,784
Fixed costs
Manufacturing		251,200
Marketing andadministrative		146,000
Operating profit	$	205,584

The company planned to produce and sell 110,500 units for $6.00each. At that volume, the contribution margin would have been$464,100. Variable marketing and administrative costs are budgetedat 10 percent of sales revenue. Manufacturing fixed costs areestimated at $2.40 per unit at the normal volume of 110,500 units.Management notes, "We budget an operating profit of $1.00 per unitat the normal volume."

Required:

a. Construct the master budget for the period.(Do not round intermediate calculations.)

GIBSON CORPORATION
Master Budget
Salesvolume		units
Salesrevenue
Variablecosts:
Manufacturing
Marketingand administrative
Contribution margin	$0
Fixedcosts:
Manufacturing
Marketingand administrative
Operating profit	$0

b. Prepare a profit variance analysis.(Do not round intermediate calculations. Indicate theeffect of each variance by selecting "F" for favorable, or "U" forunfavorable. If there is no effect, do not select eitheroption.)

GIBSON CORPORATION
Profit Variance Analysis
	Actual (130,000 Units)	Manufacturing Variances	Marketing and Administrative Variances	Sales Price Variance	Flexible Budget	Sales Activity Variance	Master Budget
Sales revenue	$873,600
Variable costs:
Manufacturing	192,192
Marketing andadministrative	78,624
Contribution margin	$602,784
Fixed costs:
Manufacturing	251,200
Marketing andadministrative	146,000
Operating profit	$205,584

olivearmadillo707

Phoenix Companyâs 2017 master budget included the following fixed budget report. It is based on an expected production and sales volume of 15,000 units.

PHOENIX COMPANY
Fixed Budget Report
For Year Ended December 31, 2017

Machinery repairs (variable cost)

45,000

DepreciationâPlant equipment (straight-line)

300,000

Utilities ($45,000 is variable)

195,000

Plant management salaries

Sales salary (fixed annual amount)

235,000

430,000

General and administrative expenses

Entertainment expense

85,000

440,000

Income from operations

370,000

Prepare flexible budgets for the company at sales volumes of 14,000 and 16,000 units and classify all items listed in the fixed budget as variable or fixed.

PHOENIX COMPANY
Fixed Budget Report
For Year Ended December 31, 2017
	Flexible Budget		Flexible Budget for:
	Variable Amount per Unit	Total Fixed Cost	Units Sales of 14,000	Unit Sales of 16,000

Variable costs









Fixed costs

The companyâs business conditions are improving. One possible result is a sales volume of 18,000 units. The company president is confident that this volume is within the relevant range of existing capacity. How much would operating income increase over the 2017 budgeted amount of $370,000 if this level is reached without increasing capacity?

PHOENIX COMPANY
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2017
Sales (in units)	15,000	18,000
Contribution margin (per unit)
Contribution margin
Fixed costs
Operating income

An unfavorable change in business is remotely possible; in this case, production and sales volume for 2017 could fall to 12,000 units. How much income (or loss) from operations would occur if sales volume falls to this level? (Enter any loss with minus sign.)

PHOENIX COMPANY
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2017
Sales (in units)	15,000	12,000
Contribution margin (per unit)
Contribution margin
Fixed costs
Operating income (loss)

byzantiumscorpion900

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

ACCT 2301 Chapter Notes - Chapter 8: Gamesmanship, Fixed Cost, Variable Cost

Document Summary

Get access

Related Documents

ACCT 2301 Study Guide - Final Guide: Net Present Value, Outsourcing, Contribution Margin

ACCT 2301 Study Guide - Midterm Guide: Long-Range Planning, Outsourcing, Opportunity Cost

ACCT 2301 Chapter Notes - Chapter 3: Contribution Margin, Fixed Cost, Variable Cost

Related Questions