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Flexible Budgets and Performance Analysis
Profit Planning (Budgeting)
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1. Cadavieco Detailing’s cost formula for its materials and supplies is $1,860 per month plus $5 per vehicle. For the month of November, the company planned for activity of 81 vehicles, but the actual level of activity was 46 vehicles. The actual materials and supplies for the month was $2,150. |
The spending variance for materials and supplies in November would be closest to:
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$60 U |
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$115 F |
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$60 F |
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$115 U |
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2. Craft Company produces a single product. Last year, the company had a net operating income of $96,860 using absorption costing and $82,300 using variable costing. The fixed manufacturing overhead cost was $13 per unit. There were no beginning inventories. If 23,800 units were produced last year, then sales last year were:
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24,920 units |
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22,680 units |
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9,240 units |
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38,360 units |
3. While fixed costs should not be affected by a change in the level of activity within the relevant range, they may change for other reasons.
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True |
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False |
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4. Roye Kennel uses tenant-days as its measure of activity; an animal housed in the kennel for one day is counted as one tenant-day. During September, Kennel budgeted for 3,200 tenant-days, but its actual level of activity was 3,250 tenant-days. Kennel has provided the following data concerning the formulas used in its budgeting and its actual results for September: |
Data used in budgeting:
Fixed element
per month
Variable element per tenant-day
Revenue
—
$34.1
0
Wages and salaries
$2,100
$7.10
Expendables
1,100
13.60
Facility expenses
7,600
2.60
Administrative expenses
6,100
0.20
Total expenses
$16,900
$23.50
Actual results for September:
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Revenue |
$107,351 |
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$28,510 |
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$46,025 |
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$15,500 |
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| Administrative expenses |
$7,091 |
The spending variance for expendables in September would be closest to:
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$1,405 U |
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$725 U |
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$1,405 F |
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$725 F |
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5. Roye Kennel uses tenant-days as its measure of activity; an animal housed in the kennel for one day is counted as one tenant-day. During September, Kennel budgeted for 5,300 tenant-days, but its actual level of activity was 5,340 tenant-days. Kennel has provided the following data concerning the formulas used in its budgeting and its actual results for September: |
Data used in budgeting:
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Fixed element per month |
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$35.80 |
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$2,500 |
$9.20 |
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1,700 |
15.70 |
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8,100 |
4.70 |
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6,600 |
0.50 |
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$18,900 |
$30.10 |
Actual results for September:
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$172,453 |
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$28,720 |
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$85,025 |
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$33,430 |
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$7,112 |
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The overall revenue and spending variance (i.e., the variance for net operating income in the revenue and spending variance column on the flexible budget performance report) for September would be closest to: |
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$6,856 U |
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$6,856 F |
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$6,628 F |
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$6,628 U |
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6. Diskind Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During October, the company budgeted for 7,200 units, but its actual level of activity was 7,150 units. The company has provided the following data concerning the formulas used in its budgeting and its actual results for October: |
Data used in budgeting:
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Fixed |
Variable |
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$34.70 |
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Direct labor |
$0 |
$6.70 |
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Direct materials |
0 |
13.20 |
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Manufacturing overhead |
42,000 |
2.20 |
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Selling and administrative expenses |
26,000 |
0.70 |
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$68,000 |
$22.80 |
Actual results for October:
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$249,300 |
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$48,110
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$95,680 |
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$46,000 |
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$30,520 |
The direct labor in the planning budget for October would be closest to:
| $48,110 |
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$47,905 |
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$48,240 |
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$48,210 |
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7. The Grand Company has budgeted departmental costs and operating activity in its four departments for the coming year as follows: |
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Service Department |
Operating Department |
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Custodial |
Repair |
Production |
Finishing |
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Departmental costs |
$ 6,450 |
$ 7,010 |
$ 50,000 |
$ 60,000 |
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Square feet |
200 |
1,600 |
4,200 |
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|
Number of repair requests |
240 |
100 |
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The company does not distinguish between fixed and variable service department costs. Custodial costs are allocated on the basis of square feet occupied. Repair costs are allocated on the basis of the number of repair requests. Assume Custodial costs are allocated first. |
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Assume Grand uses the step-down allocation method. After all allocations, how much of the company’s total overhead cost will be charged to the Finishing Department for the coming year? (Round your answer to the nearest dollar amount.) |
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$71,757 |
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$66,640 |
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$67,391 |
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$64,515 |
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8. Brarin Corporation is a small wholesaler of gourmet food products. Data regarding the store’s operations follow: |
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• |
Sales are budgeted at $310,000 for November, $330,000 for December, and $320,000 for January. |
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Collections are expected to be 60% in the month of sale, 39% in the month following the sale, and 1% uncollectible. |
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The cost of goods sold is 65% of sales. |
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The company would like to maintain ending merchandise inventories equal to 55% of the next month’s cost of goods sold. Payment for merchandise is made in the month following the purchase. |
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Other monthly expenses to be paid in cash are $22,800. |
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Monthly depreciation is $20,700. |
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Ignore taxes. |
Expected cash collections in December are:
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$120,900 |
| $330,000 |
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$198,000 |
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$318,900 |
>Q and , and two operating departments. Selected information relating to these departments is given below:
Departmental costs
119,7 0
,9 employees
40 labor hours
70,000 costs are allocated first on the basis of number of employees, and then Maintenance costs are allocated on the basis of total labor hours.
Service Departments Operating Departments $ $ $ actory Administration
$ $ $ $ uses customers served as its measure of activity. The following report compares the planning budget to the actual operating results for the month of May:
to (3.40q)
$ $ $ F ($23,900 + $1.29q)
($0.69q)
F ($5,800)
5,800 0 ($4,800 + $.38q)
2,700 F F $ $ $ F ne” for no effect (i.e., zero variance). Omit the “$” sign in your response.)
Tajiri Corporation Performance Report Part 1 & 2
For the Month Ended May 31 Flexible Budget U/F/None 40,000 Expenses: Department, and we always seem to get every job we bid on that requires a lot of machine time in the Department.
Number of Hours Labor- Hours — — Maintenance
— —
$ Required: $ $ $ $ $ $ $ Cafeteria Custodial Machinery Milling Finishing Allocation: Predetermined overhead rate $ $ Direct $ Total overhead cost $ . is a company that acts as a facilitator in tax-favored real estate swaps. Such swaps, known as 1031 exchanges, permit participants to avoid some or all of the capital gains taxes that would otherwise be due. The bookkeeper for the company has been asked to prepare a report for the company to help its owner/manager analyze performance. The first such report appears below:
Facilitator Corp For the Month Ended May 31 Actual Unit Revenues and Costs Variances Expenses: Total expense 427 378 49 F Net operating income $ 323 $ 327 $ 4 F Legal and search fees is a variable cost; office expenses is a mixed cost; and equipment depreciation, rent, and insurance are fixed costs. In the planning budget, the fixed component of office expenses was $4,100. No For the Month Ended May 31 Expenses: Equipment depreciation Total expense Net operating income $ $ $ $ $ For the Month Ended May 31 $ $
Expenses: U 5 F F 10 F F $ $ 4 F Required: Facilitator Corp For the Month Ended May 31 Activity Variances U/F/None Revenue and Spending Variances U/F/None Expenses:2
1
Flinders Company has two service departments,
Factory
Administration
Maintenance
Service Departments
Operating Departments
Factory Maintenance
X
Y
Administration
$
0
$ 6
3
40
$ 723,000
$ 623,000
Number of
6
4
70
Total
3,200
5,200
70,000
The company allocates service department costs by the step-down method.
Factory Administration
Factory Administration Maintenance X Y
Departmental costs
$
Allocations:
F
Maintenance
Total costs after allocations
Q2
Tajiri Corporation
Tajiri Corporation
Comparison of
Planning
Budget
Actual
Results
For the Month Ended May 31
Planning Actual
Variances
Budget Results
Customers served
39,000
40,000
Revenue
132,600
136,500
3,900
Expenses:
Wages and salaries
74,210
75,500
1,290
U
Supplies
26,910
24,210
2,700
Insurance
5,800
Miscellaneous
19,620
16,920
Total expense
126,540
122,430
4,110
Net operating income
6,060
14,070
8,010
Required:
1
Complete the company’s flexible budget performance report for May. Label each variance as favorable (F) or unfavorable (U). (Input all amounts as positive values. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “
No
Flexible Budget
Planning Budget
Activity Variances
U/F/None
Revenue and Spending Variances
Actual Results
Customers served
39,000
Revenue $ 132,600 $ $ $ $
136,500
Wages and salaries 74,210
75,500
Supplies 26,910
24,210
Insurance 5,800 5,800
Miscellaneous 19,620 16,920
Total expense 126,540 122,430
Net operating income $ 6,060 $ $ $ $
14,070
Q3
“I can’t understand what’s happening here,” said Mike Holt, president of Severson Products, Inc. “We always seem to bid too high on jobs that require a lot of labor time in the
Finishing
Milling
Yet we don’t seem to be making much money on those Milling Department jobs. I wonder if the problem is in our overhead rates.”
Severson Products manufactures high-quality wood products to customers’ specifications. Some jobs take a large amount of machine work in the Milling Department, and other jobs take a large amount of hand finishing work in the Finishing Department.
In addition to the Milling and Finishing departments, the company has three service departments. The costs of these service departments are allocated to other departments in the order listed below. (For each service department, use the most appropriate allocation base.)
Total
Square Feet
Machine-
Direct
Labor-
Hours
of Space
Employees
Occupied
Cafeteria
16,500
12,800
28
—
—
Custodial
Services
8,500
3,600
42
Machinery
14,900
10,100
60
Milling
30,500
40,600
106
168,000
17,000
Finishing
105,000
20,300
3
10
50,000
71,000
175,400
87,400
546
218,000
88,000
Budgeted overhead costs in each department for the current year are as follows:
Cafeteria $
340,000
*
Custodial Services
65,500
Machinery Maintenance
93,600
Milling
417,000
Finishing
163,000
Total budgeted cost
1,079,100
*This represents the amount of cost subsidized by the company.
Because of its simplicity, the company has always used the direct method to allocate service department costs to the two operating departments.
1
Using the step-down method, allocate service department costs to the consuming departments. Then compute predetermined overhead rates in the operating departments for the current year using machine-hours as the allocation base in the Milling Department and direct labor-hours as the allocation base in the Finishing Department. (Leave no cells blank – be certain to enter “0” wherever required. Amounts to be deducted should be indicated with a minus sign. Do not round intermediate calculations. Round your “Predetermined overhead rates” to 2 decimal places and other answers to the nearest dollar amount. Omit the ” $” sign in your response.)
Cafeteria Custodial Machinery Milling Finishing
Services Maintenance
Total costs before allocations
$ 340,000
$ 65,500
$ 93,600
$ 417,000
$ 163,000
Allocation:
Cafeteria
Custodial Services
Machinery Maintenance
Total overhead after allocations
Predetermined overhead rate
2
Repeat (1) above, this time using the direct method. Again compute predetermined overhead rates in the the Milling and Finishing Departments. (Leave no cells blank – be certain to enter “0” wherever required. Amounts to be deducted should be indicated with a minus sign. Do not round intermediate calculations. Round your “Predetermined overhead rates” to 2 decimal places and other answers to the nearest dollar amount. Omit the ” $” sign in your response.)
Services Maintenance Total costs before allocations $ 340,000 $ 65,500 $ 93,600 $ 417,000
$ 163,000
Cafeteria
Custodial Services
Machinery Maintenance
Total overhead after allocations $ $ $ $ $
3
Assume that during the current year the company bids on a job that requires machine and labor time as follows:
Machine-Hours
Labor-Hours
Milling Department
2,300
1,500
Finishing Department
600
13,800
Total hours
2,900
15,300
a.
Determine the amount of overhead that would be assigned to the job if the company used the overhead rates developed in (1) above. (Round your “Predetermined overhead rates” to 2 decimal places and final answers to the nearest dollar amount. Omit the ” $” sign in your response.)
Total overhead cost
b.
Determine the amount of overhead that would be assigned to the job if the company used the overhead rates developed in (2) above. (Round your “Predetermined overhead rates” to 2 decimal places and final answers to the nearest dollar amount. Omit the ” $” sign in your response.)
Q4
Facilitator Corp
Analysis of Revenues and Costs
Planning Budget Unit Revenues and Costs
Exchanges completed 20 25
Revenue $ 750 $ 705 $ 45 U
Legal and search fees 135 139 4 U
Office expenses 208 173 35 F
Equipment depreciation 18 13 5 F
Rent 55 43 12 F
Insurance 11 10 1 F Note that the revenues and costs in the above report are unit revenues and costs. For example, the average office expense is $208 per exchange completed on the planning budget; whereas, the average actual office expense is $173 per exchange completed.
All of the company’s revenues come from fees collected when an exchange is completed.
Required:
1. Whether report prepared by the bookkeeper is useful as a performance report?
Yes
2.
Complete a performance report that would help the owner/manager assess the performance of the company in May. (Input all amounts as positive values. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Omit the “$” sign in your response.)
Facilitator CorpFlexible Budget Performance Report
Planning Budget Activity Variances Flexible Budget Revenue and Spending Variances Actual Results
Exchanges completed
Revenue $ $ $ $ $
Legal and search fees
Office expenses
Rent
Insurance Q5
Facilitator Corp. is a company that acts as a facilitator in tax-favored real estate swaps. Such swaps, known as 1031 exchanges, permit participants to avoid some or all of the capital gains taxes that would otherwise be due. The bookkeeper for the company has been asked to prepare a report for the company to help its owner/manager analyze performance. The first such report appears below:
Facilitator Corp
Analysis of Revenues and Costs
Planning Budget Unit Revenues and Costs
Actual Unit Revenues and Costs
Variances
Exchanges completed
20
25
Revenue $
750
705
4
5
U
Legal and search fees
135
139
4
Office expenses
208
173
35
F
Equipment depreciation
18
13
Rent
55
43
12
Insurance
11
1
Total expense
427
378
49
Net operating income $
323
327
Note that the revenues and costs in the above report are unit revenues and costs. For example, the average office expense is $208 per exchange completed on the planning budget; whereas, the average actual office expense is $173 per exchange completed.
Legal and search fees is a variable cost; office expenses is a mixed cost; and equipment depreciation, rent, and insurance are fixed costs. In the planning budget, the fixed component of office expenses was $4,100.
All of the company’s revenues come from fees collected when an exchange is completed.
1 Whether report prepared by the bookkeeper is useful as a performance report?
Yes
No
2
Complete a performance report that would help the owner/manager assess the performance of the company in May. (Input all amounts as positive values. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Omit the “$” sign in your response.)
Flexible Budget Performance Report
Planning Budget
Flexible Budget
Actual Results
Exchanges completed
Revenue $ $ $ $ $
Legal and search fees
Office expenses
Equipment depreciation
Rent
Insurance
Total expense
Net operating income $ $ $ $ $
rev: 11_17_2012
