9.23 Standard Costing.handout.inclass

LO2 Preparing a Flexible Budget

SE 5. Prepare a flexible budget for 10,000, 12,000, and 14,000 units of output,

using the following information:

Variable costs

Direct materials $10.00 per unit

Direct labor $3.00 per unit

Variable overhead $5.00 per unit

Total budgeted fixed overhead $80,800

LO2 Flexible Budgets and Performance Evaluation

P 7. Cassen Realtors, Inc., specializes in the sale of residential properties. It earns

its revenue by charging a percentage of the sales price. Commissions for sales

persons, listing agents, and listing companies are its main costs. Business has

improved steadily over the last 10 years. Bonnie Cassen, the managing partner of

Cassen Realtors, receives a report summarizing the company’s performance each

year. The report for the most recent year appears below.

Cassen Realtors, Inc.

Performance Report

For the Year Ended December 31

Difference

Budget Actual†

Under (Over)

Budgeted*

Total selling fees $2,052,000 $2,242,200 ($190,200)

Variable costs

Sales commissions $1,102,950 $1,205,183 ($102,233)

Automobile 36,000 39,560 (3,560)

Advertising 93,600 103,450 (9,850)

Home repairs 77,400 89,240 (11,840)

General overhead 656,100 716,970 (60,870)

$1,966,050 $2,154,403 ($188,353)

Fixed costs

General overhead 60,000 62,300 (2,300)

Total costs $2,026,050 $2,216,703 ($190,653)

Operating income $ 25,950 $ 25,497 $ 453

*Budgeted data are based on 180 units sold.

†Actual data for 200 units sold.

Required

1. Analyze the performance report. What does it say about the company’s

performance? Is the performance report reliable? Explain your answer.

2. Calculate the budgeted selling fee and budgeted variable costs per home

sale.

3. Prepare a performance report using a flexible budget based on the actual

number of home sales.

LO3 Direct Materials Price and Quantity Variances

E 5. SITO Elevator Company manufactures small hydroelectric elevators with a

maximum capacity of ten passengers. One of the direct materials used is heavy-

duty carpeting for the floor of the elevator. The direct materials quantity standard

for April was 8 square yards per elevator. During April, the purchasing agent

purchased this carpeting at $11 per square yard; the standard price for the period

was $12. Ninety elevators were completed and sold during the month; the

Production Department used an average of 8.5 square yards of carpet per elevator.

Calculate the company’s direct materials price and quantity variances for carpeting

for April.

LO3 Direct Materials Variances

E 6. Diekow Productions manufactured and sold 1,000 products at $11,000 each

during the past year. At the beginning of the year, production had been set at 1,200

products; direct materials standards had been set at 100 pounds of direct materials

at $2 per pound for each product produced. During the year, the company

purchased and used 98,000 pounds of direct materials; the cost was $2.04 per

pound. Calculate Diekow Production’s direct materials price and quantity

variances for the year.

LO4 Direct Labor Variances

E 7. At the beginning of last year, Diekow Productions set direct labor standards

of 20 hours at $15 per hour for each product produced. During the year, 20,500

direct labor hours were actually worked at an average cost of $16 per hour. Using

this information and the applicable information in E 6, calculate Diekow

Production’s direct labor rate and efficiency variances for the year.

LO4 Direct Labor Rate and Efficiency Variances

E 8. NEO Foundry, Inc., manufactures castings that other companies use in the

production of machinery. For the past two years, NEO’s best-selling product has

been a casting for an eight-cylinder engine block. Standard direct labor hours per

engine block are 1.8 hours. A labor union contract requires that the company pay

all direct labor employees $14 per hour. During June, NEO produced 16,500

engine blocks. Actual direct labor hours and costs for the month were 29,900

hours and $433,550, respectively.

1. Compute the direct labor rate variance for eight-cylinder engine blocks

during June.

2. Using the same data, compute the direct labor efficiency variance for eight-

cylinder engine blocks during June. Check your answer, assuming that the

total direct labor cost variance is $17,750 (U).

LO5 Variable Overhead Variances

E 9. At the beginning of last year, Diekow Productions set variable overhead

standards of 10 machine hours at a rate of $10 per hour for each product produced.

During the year, 10,800 machine hours were used at a cost of $10.20 per hour.

Using this information and the applicable information in E 6, calculate Diekow

Production’s variable overhead spending and efficiency variances for the year.

LO5 Fixed Overhead Variances

E 10. At the beginning of last year, Diekow Productions set budgeted fixed

overhead costs at $456,000. During the year, actual fixed overhead costs were

$500,000. Using this information and the applicable information in E 6, calculate

Diekow Production’s fixed overhead budget and volume variances for the year.

Assume that fixed overhead is applied based on units of product.

LO5 Overhead Variances

SE 8. Weatherall Products uses standard costing. The following information about

overhead was generated during August:

Standard variable overhead rate $3.00 per machine hour

Standard fixed overhead rate $3.10 per machine hour

Actual variable overhead costs $680,100

Actual fixed overhead costs $698,800

Budgeted fixed overhead costs $700,000

Standard machine hours per unit

produced

12

Good units produced 18,940

Actual machine hours 228,400

Compute the variable overhead spending and efficiency variances and the fixed

overhead budget and volume variances.

LO5 Overhead Variances

E 13. Cedar Key Company produces handmade clamming buckets and sells them

to distributors along the Gulf Coast of Florida. The company incurred $9,400 of

actual overhead costs ($8,000 variable; $1,400 fixed) in May. Budgeted standard

overhead costs for May were $4 of variable overhead costs per direct labor hour

and $1,500 of fixed overhead costs. Normal capacity was set at 2,000 direct labor

hours per month. In May, the company produced 10,100 clamming buckets by

working 1,900 direct labor hours. The time standard is 0.2 direct labor hour per

clamming bucket. Compute (1) the variable overhead spending and efficiency

variances and (2) the fixed overhead budget and volume variances for May.

LO5 Overhead Variances

E 14. Suncoast Industries uses standard costing and a flexible budget for cost

planning and control. Its monthly budget for overhead costs is $200,000 of fixed

costs plus $5.20 per machine hour. Monthly normal capacity of 100,000 machine

hours is used to compute the standard fixed overhead rate. During December,

employees worked 105,000 machine hours. Only 98,500 standard machine hours

were allowed for good units produced during the month. Actual overhead costs

incurred during December totaled $441,000 of variable costs and $204,500 of

fixed costs. Compute (1) the under- or overapplied overhead during December and

(2) the variable overhead spending and efficiency variances and the fixed

overhead budget and volume variances.