Question 14-27
Required
a. The price variance for hard plastic. Indicate whether the variance is favorable or unfavorable.
Question 1
Cost per unitpurchasescost Price variance of the hard plastic 2.6541500102920
b. The price variance for metal beams. Indicate whether the variance is favorable or unfavorable
Price variance of the metal beams 1.282700107510
c. The total direct materials price variance. Indicate whether the variance is favorable or unfavorable.
Total direct material variance
Chairsquantitypurchased
Usage variance of the hard plastic 20800241500 Usage variance of the metal beams 20800482700 Total usage variance
The variance is unfovarable
2. What are the advantages and disadvantages of computing total price and usage variances when there are multiple material inputs?Direct Materials Price and Usage Variances DES Company manufactures folding chairs. Direct materials include hard plastic for the seat and back and metal beams for the legs. The standard cost sheet for a single chair includes the following direct materials information:
Material Quantity Cost per Unit Total Cost
Hard plastic 2 sheets $2.65 per sheet $5.30
Metal beams 4 beams $1.20 per beam 4.80 $10.10
Table Summary: Summary
Last month, DES purchased 41,500 sheets of hard plastic at a cost of $102,920. The company also purchased 82,700 metal beams at a cost of $107,510. DES produced 20.800 chairs. There was no beginning or ending inventory of plastic sheets or metal beams during the month. d. The usage variances for hard plastic and metal beams, and the total direct materials usage variance. Indicate whether each variance is favorable or unfavorable.
Companies use gap analysis in a variety of ways. The starting point is to define the criteria for comparing actual results. Many companies produce deviating reports, and management responsible for deviations should consider deviations outside a specific range. While some companies only seek an explanation for the unfavorable anomalty, many seek the cause of both favorable and unfavorable biases. Deviation analysis is an essential tool for an organization to achieve its long-term goals. When the accounting system detects a discrepancy,the organization reacts not only to the significant impact that accounting has on the record of financial results, but also to the differences that management's actions may make to achieve the goal. The first limitation of the analysis of variance comes from the use of criteria. As part of establishing standard costs, businesses must set standards for each expense or revenue they incur. However, this process can be lengthy, and any problems can lead to significant gaps in gap analysis. Likewise, companies must continually revise their standards to account for any changes. Gap analysis requires companies to go through a long process. This can translate into higher costs for the business. The method of calculating variance, investigation, and reporting is complex. Companies need to bring in professional employees to complete the process and get to the results. As a result, it can increase costs, which may outweigh the benefits that companies derive from the process. Question 14-27
a. The price variance for hard plastic. Indicate whether the variance is favorable or unfavorable.
variances
7055
b. The price variance for metal beams. Indicate whether the variance is favorable or unfavorable
-8270
c. The total direct materials price variance. Indicate whether the variance is favorable or unfavorable.
15325
cost per unitUsage variances
2.65-68375
1.2-16040
-84415
2. What are the advantages and disadvantages of computing total price and usage variances when there are multiple material inputs?Direct Materials Price and Usage Variances DES Company manufactures folding chairs. Direct materials include hard plastic for the seat and back and metal beams for the legs. The standard cost sheet for a single chair includes the following direct materials information:
Material Quantity Cost per Unit Total Cost
Hard plastic 2 sheets $2.65 per sheet $5.30
Metal beams 4 beams $1.20 per beam 4.80
Last month, DES purchased 41,500 sheets of hard plastic at a cost of $102,920. The company also purchased 82,700 metal beams at a cost of $107,510. DES produced 20.800 chairs. There was no beginning or ending inventory of plastic sheets or metal beams during the month. d. The usage variances for hard plastic and metal beams, and the total direct materials usage variance. Indicate whether each variance is favorable Companies use gap analysis in a variety of ways. The starting point is to define the criteria for comparing actual results. Many companies produce deviating reports, and management responsible for deviations should consider deviations outside a specific range. While some companies only seek an explanation for the unfavorable anomalty, many seek the cause of both favorable and unfavorable biases. Deviation analysis is an essential tool for an organization to achieve its long-term goals. When the accounting system detects a discrepancy,the organization reacts not only to the significant impact that accounting has on the record of financial results, but also to the differences that management's actions may make to achieve the goal. The first limitation of the analysis of variance comes from the use of criteria. As part of establishing standard costs, businesses must set standards for each expense or revenue they incur. However, this process can be lengthy, and any problems can lead to significant gaps in gap analysis. Likewise, companies must continually revise their standards to account for any changes. Gap analysis requires companies to go through a long process. This can translate into higher costs for the business. The method of calculating variance, investigation, and reporting is complex. Companies need to bring in professional employees to complete the process and get to the results. As a result, it can increase costs, which may outweigh the benefits that companies derive from the process. Question 14-29
FLEXIBLE BUDGET
Particulars
output (units) 55000 65000
$ $
sales 31550001705000
cost of sales
Direct materials 2.855000154000
variable overheads 40% 165000
Direct labor 7.555000412500
Fixed overhead 60000
Gross profit 913500
Expense
sales commision 9% 153450
Rent 40000
Insuarance 30000
Salaries 92000Generating a Flexible Budget; Spreadsheet Application Crane Corporation’s master budget for the year is shown below:
Sales (60,000 units) $1,860,000
Cost of goods sold: Direct materials $168,000 Direct labor 450,000 Overhead (variable overhead
applied at 40% of direct labor cost) 240,000 858,000Gross profit $1,002,000
Selling expenses: Sales commissions (all variable) $167,400 Rent (all fixed) 40,000 Insurance (all short-term fixed) 30,000 General expenses: Salaries (all short-term fixed) 92,000 Rent (all short-term fixed) 77,000 Depreciation (all short-term fixed) 50,000 456,400
Operating income $545,600 Required
1. During the year, the company manufactured and sold 55,000 units of product. Prepare an Excel spreadsheet that contains a flexible budget for this level of output. Round all budget figures to nearest whole dollar.
2. Now suppose that the actual level of output was 65,000 units. Rerun your spreadsheet to generate a flexible budget for this output level. Round all budget figures to the nearest whole dollar.
3. Of what relevance is the notion of the “relevant range” when preparing pro forma budgets or a flexible budget for control purposes?
