ACCT 215 Problems Solutions, Fall 2011

Chapter 09 Flexible Budgets and Performance Analysis Chapter 9 Flexible Budgets and Performance Analysis Exercise 9-5 (15 minutes) Icicle Bay Tours Planning Budget For the Month Ended August 31 Budgeted cruises (q1)............................................................... 58 Budgeted passengers (q2)....................................................... 3,200 Revenue ($28.00q2)................................................................... $89,600 Expenses: Vessel operating costs ($6,800 + $475.00q1 +$3.50q2)...... 45,550 Advertising ($2,700)............................................................... 2,700 Administrative costs ($5,800 + $36.00q1 + $1.80q2)........... 13,648 Insurance ($3,600)................................................................. 3,600 Total expense............................................................................ 65,498 Net operating income.............................................................. $24,102 9-1 Chapter 09 Flexible Budgets and Performance Analysis Exercise 9-6 (10 minutes) The variance report compares the planning budget to actual results and should not be used to evaluate how well costs were controlled during May. The planning budget is based on 200 jobs, but the actual results are for 208 jobs. Consequently, the actual revenues and many of the actual costs should have been different from what was budgeted at the beginning of the period. Direct comparisons of budgeted to actual costs are valid only if the costs are fixed. To evaluate how well revenues and costs were controlled, it is necessary to estimate what the revenues and costs should have been for the actual level of activity using a flexible budget. The flexible budget amounts can then be compared to the actual results to evaluate how well revenues and costs were controlled. 9-2 Chapter 09 Flexible Budgets and Performance Analysis Exercise 9-9 (15 minutes) Auto Lavage Planning Budget For the Month Ended October 31 Budgeted cars washed (q)............................... 8,000 Revenue ($5.90q).............................................. $47,20 0 Expenses: Cleaning supplies ($0.70q)............................ 5,600 Electricity ($1,400 + $0.10q).......................... 2,200 Maintenance ($0.30q).................................... 2,400 Wages and salaries ($4,700 + $0.40q)......... 7,900 Depreciation ($8,300).................................... 8,300 Rent ($2,100).................................................. 2,100 Administrative expenses ($1,800 + $0.05q).......................................................... 2,200 Total expense.................................................... 30,700 Net operating income...................................... $16,50 0 9-3 Chapter 09 Flexible Budgets and Performance Analysis Exercise 9-10 (15 minutes) Auto Lavage Flexible Budget For the Month Ended October 31 Actual cars washed (q)..................................... 8,100 Revenue ($5.90q).............................................. $47,79 0 Expenses: Cleaning supplies ($0.70q)............................ 5,670 Electricity ($1,400 + $0.10q).......................... 2,210 Maintenance ($0.30q).................................... 2,430 Wages and salaries ($4,700 + $0.40q)......... 7,940 Depreciation ($8,300).................................... 8,300 Rent ($2,100).................................................. 2,100 Administrative expenses ($1,800 + $0.05q).......................................................... 2,205 Total expense.................................................... 30,855 Net operating income...................................... $16,93 5 9-4 Chapter 09 Flexible Budgets and Performance Analysis Exercise 9-11 (20 minutes) Auto Lavage Activity Variances For the Month Ended October 31 Plannin g Budget Flexible Budget Activity Variances Cars washed (q).................................. 8,000 8,100 Revenue ($5.90q)................................ $47,200 $47,790 $590 F Expenses: Cleaning supplies ($0.70q)............. 5,600 5,670 70 U Electricity ($1,400 + $0.10q)........... 2,200 2,210 10 U Maintenance ($0.30q)..................... 2,400 2,430 30 U Wages and salaries ($4,700 + $0.40q).......................... 7,900 7,940 40 U Depreciation ($8,300)...................... 8,300 8,300 0 Rent ($2,100).................................... 2,100 2,100 0 Administrative expenses ($1,800 + $0.05q).......................... 2,200 2,205 5 U Total expense...................................... 30,700 30,855 155 U Net operating income........................ $16,500 $16,935 $435 F 9-5 Chapter 09 Flexible Budgets and Performance Analysis Exercise 9-12 (20 minutes) Auto Lavage Revenue and Spending Variances For the Month Ended October 31 Flexible Budget Actual Results Revenue and Spending Variances Cars washed (q)............................. 8,100 8,100 Revenue ($5.90q)........................... $47,790 $49,300 $1,510 F Expenses: Cleaning supplies ($0.70q)........ 5,670 6,100 430 U Electricity ($1,400 + $0.10q)....... 2,210 2,170 40 F Maintenance ($0.30q)................ 2,430 2,640 210 U Wages and salaries ($4,700 + $0.40q)...................... 7,940 8,260 320 U Depreciation ($8,300)................. 8,300 8,300 0 Rent ($2,100)............................... 2,100 2,300 200 U Administrative expenses ($1,800 + $0.05q)...................... 2,205 2,100 105 F Total expense................................. 30,855 31,870 1,015 U Net operating income................... $16,935 $17,430 $     495 F 9-6 Chapter 09 Flexible Budgets and Performance Analysis Exercise 9-13 (30 minutes) Auto Lavage Flexible Budget Performance Report For the Month Ended October 31 Planning Budget Activity Variances Flexible Budget Revenue and Spending Variances Actual Results Cars washed (q)....................................... 8,000 8,100 8,100 Revenue ($5.90q)..................................... $47,200 $590 F $47,790 $1,510 F $49,300 Expenses: Cleaning supplies ($0.70q).................. 5,600 70 U 5,670 430 U 6,100 Electricity ($1,400 + $0.10q)................ 2,200 10 U 2,210 40 F 2,170 Maintenance ($0.30q).......................... 2,400 30 U 2,430 210 U 2,640 Wages and salaries ($4,700 + $0.40q)............................... 7,900 40 U 7,940 320 U 8,260 Depreciation ($8,300).......................... 8,300 0 8,300 0 8,300 Rent ($2,100)......................................... 2,100 0 2,100 200 U 2,300 Administrative expenses ($1,800 + $0.05q)............................... 2,200 5 U 2,205 105 F 2,100 Total expense.......................................... 30,700 155 U 30,855 1,015 U 31,870 Net operating income............................ $16,500 $435 F $16,935 $     495 F $17,430 9-7 Chapter 09 Flexible Budgets and Performance Analysis Exercise 9-19 (45 minutes) 1. The planning budget appears below. Note that the report does not include revenue or net operating income because the production department is a cost center that does not have any revenue. Triway Packaging Corporation Production Department Planning Budget For the Month Ended November 30 Budgeted labor-hours (q)............................... 4,000 Direct labor ($16.30q)..................................... $ 65,200 Indirect labor ($4,300 + $1.80q).................... 11,500 Utilities ($5,600 + $0.70q)............................... 8,400 Supplies ($1,400 + $0.30q)............................. 2,600 Equipment depreciation ($18,600 + $2.80q)........................................................... 29,800 Factory rent ($8,300)....................................... 8,300 Property taxes ($2,800).................................. 2,800 Factory administration ($13,400 + $0.90q). . 17,000 Total expense.................................................. $145,600 2. The flexible budget appears below. Like the planning budget, this report does not include revenue or net operating income because the production department is a cost center that does not have any revenue. Triway Packaging Corporation Production Department Flexible Budget For the Month Ended November 30 Actual labor-hours (q)..................................... 3,800 Direct labor ($16.30q)..................................... $ 61,940 Indirect labor ($4,300 + $1.80q).................... 11,140 Utilities ($5,600 + $0.70q)............................... 8,260 Supplies ($1,400 + $0.30q)............................. 2,540 Equipment depreciation ($18,600 + $2.80q)........................................................... 29,240 Factory rent ($8,300)....................................... 8,300 Property taxes ($2,800).................................. 2,800 Factory administration ($13,400 + $0.90q). . 16,820 9-8 Chapter 09 Flexible Budgets and Performance Analysis Total expense.................................................. $141,04 0 9-9 Chapter 09 Flexible Budgets and Performance Analysis Exercise 9-19 (continued) 3. The flexible budget performance report appears below. This report does not include revenue or net operating income because the production department is a cost center that does not have any revenue. Triway Packaging Corporation Production Department Flexible Budget Performance Report For the Month Ended November 30 Planning Budget Activity Variances Flexible Budget Spending Variances Actual Results Labor-hours (q).................................. 4,000 3,800 3,800 Direct labor ($16.30q)....................... $ 65,200 $3,260 F $ 61,940 $1,580 U $ 63,520 Indirect labor ($4,300 + $1.80q)....... 11,500 360 F 11,140 460 F 10,680 Utilities ($5,600 + $0.70q)................. 8,400 140 F 8,260 530 U 8,790 Supplies ($1,400 + $0.30q)................ 2,600 60 F 2,540 270 U 2,810 Equipment depreciation ($18,600 + $2.80q).......................... 29,800 560 F 29,240 0 29,240 Factory rent ($8,300)......................... 8,300 0 8,300 400 U 8,700 Property taxes ($2,800)..................... 2,800 0 2,800 0 2,800 Factory administration ($13,400 + $0.90q).......................... 17,000 180 F 16,820 590 F 16,230 Total expense..................................... $145,600 $4,560 F $141,040 $1,730 U $142,770 9-10 Chapter 09 Flexible Budgets and Performance Analysis Exercise 9-19 (continued) 4. The overall favorable activity variance of $4,560 occurred because the actual level of activity was less than the budgeted level of activity. Because of this decreased level of activity, some of the costs should have been lower than budgeted. Consequently, calling this a favorable variance is a bit misleading. On the other hand, the overall unfavorable spending variance of $1,730 may be of concern to management. Why did the unfavorable—and favorable—variances occur? Even the relatively small unfavorable spending variance for supplies of $270 should probably be investigated because, as a percentage of what the cost should have been ($270/$2,540 = 10.7%), this variance is fairly large. 9-11