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Solutions, Ch. 7 & 14 Assignments

Solutions, Ch. 7 & 14 Assignments. ACCT7310 , Spring 2014. Problem 7-26 Straightforward DM , DL. Al. Also called Usage or Quantity variance!. Formulas: MPV = (AP- SP )* AQpurchased = ($5.10-5.00)*3700 = $370 U MEV = ( AQused-SQallowed ) * SP = (3700-4000)*$5 = $1500 F.

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Solutions, Ch. 7 & 14 Assignments

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  1. Solutions, Ch. 7 & 14 Assignments ACCT7310, Spring 2014

  2. Problem 7-26 Straightforward DM, DL

  3. Al Also called Usage or Quantity variance! Formulas: MPV = (AP-SP)*AQpurchased = ($5.10-5.00)*3700 = $370 U MEV = (AQused-SQallowed) *SP = (3700-4000)*$5 = $1500 F

  4. Direct Labor variances--Similar Or Rate variance Here the term Efficiency is a good fit, because efficiency is commonly associated with labor.

  5. Identifying DM variance at time of purchase

  6. Problem 7-34 Flexible budget for quantityused. Flexible budget for quantitypurchased. “Actual input” may be awkward terminology here. Q2: Causal effects?

  7. 3. Switching vendors good idea? • Can we say whether it was a good decision? • Outcome: • The $25,200 savings in the cost of titanium was outweighed by the $33,000 extra material usage. • Also, the $33,000 does not reflect the total cost of inefficiency; 500 lbs remain to be used used. At current usage rate (7900/800), could produce about 50 more units. At standard, 50 more units should take 50 × 8 = 400 lbs., not 500 lbs.

  8. Additional questions 4. Performance issues • Should PA (M. Scott) be evaluated solely on price variances? • The prod’n manager solely on efficiency variances? • Important for owner to understand causes before evaluating performance. • Variances raise questions. Managers must interpret--construct a story. • 5. Other than performance evaluation, what reasons for calculating variances? • 6. What future problems from decision to buy lower-quality of titanium?

  9. Static Budget calculations

  10. Pr. 7-39: Comprehensive Review .95*1,500,000 1,500,000 units =1,425,000 Total static-budget variance $ 263,290 U

  11. Flexible Budget with Variances @$6 @ $1.50 .04 .30 5 4

  12. Analyzing the Sales Volume Variance ?

  13. Market size & share var’s (contr. mgn) If we had maintained our share, we would have sold this many units. 6 Only one product, so no question of “mix.”

  14. Price, efficiency var’s for DL 7 8 Or, thinking in terms of formulas: LRV = (AP-SP)*AQ = ($12.20-12.00)*5700 = $1140 U LEV = (AQused-SQallowed) *SP = (5700-4750)*$12 = $11,400 U

  15. Pr. 14-23, Detroit Penguins Note that this is the difference between the Static and the Flexible budgets: Static: 4000*$20+6000*5 = $110,000 Flex: 3300*$20 + 7700*$5 = 104,500 $104,500- $110,000 = $5500 U

  16. Sales-Quantity Variance [from last week]Effect on CM purely from quantity sold (Actual units of all products sold – Budgeted units of all products sold) = Budgeted sales-mix percentage × Budgeted contribution margin per unit × • Rationale: • If overall sales increased… • and the sales mix had been as expected (budgeted)… • then contribution margin would have increased at the budget rate per unit.

  17. Sales-Mix Variance = Actual units of all products sold × Change in mix: (Actual sales % – Budgeted %) × Budgeted contribution margin per unit Computed for each product and total.

  18. Conclusions • The Detroit Penguins increased average attendance by 10% per game. However, there was a sizable shift from lower-tier seats (budgeted contribution margin of $20 per seat) to the upper-tier seats (budgeted contribution margin of $5 per seat). The net result: the actual contribution margin was $5,500 below the budgeted contribution margin.

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