Question 1. EM, Inc. private labels mini cupcakes for Starbucks. For April 2012, it budgeted to purchase and use 18,000 pounds of flour at $0.39 a pound. Actual purchases and usage for April 2012 were 22,000 pounds at $0.42 a pound. EM budgeted to produce 120,000 mini cupcakes. EM budgets to obtain 4 mini-cupcakes per pound of flour. Actual output was 132,000 mini cupcakes.
a) FLEXIBLE BUDGET VARIANCE
|
|
|
Budget |
|
actual |
|
Variance |
| Units of inputs (lbs of flour) |
18,000 |
|
22,000 |
|
-4,000 |
| Price /pound ( $) |
|
0.39 |
|
0.42 |
|
-0.03 |
| Total expenditures |
|
7020 |
|
9240 |
|
-2220 |
b) Price variance = -0.03
c) Efficiency Variance:( Actual quantity of inputs - standard quantity of inputs)( standard price)
Efficiency variance ($): 1560
d) Analysis:
a. Compute the flexible-budget variance.
b. Compute the price variance.
c. Compute the efficiency variances.
d. Comment on the results for the requirements above and provide possible explanation for them.
Where do the comparison between 4 mini cupcakes per pound of flour versus the actual output of 132,000 mini cupcakes occur.
Question 2. Kool Clothing is a manufacturer of designer dresses. The cost of each dress is the sum of three variable costs (direct materials cost, direct manufacturing labor costs, and manufacturing overhead costs) and one fixed-cost category (manufacturing overhead costs). Variable manufacturing overhead costs is allocated to each dress on the basis of budgeted direct manufacturing labor-hours per dress. For April 2012 each dress is budgeted to take five labor-hours. Budgeted variable manufacturing cost per labor hour is $15. The budgeted number of dresses to be manufactured in April 2012 is 1,250. Actual variable manufacturing costs in April 2012 were $65,688 for 1,360 dresses started and completed. There was no beginning or ending inventories of dresses. Actual direct manufacturing labor-hours for April were 5,712.
a) FLEXIBLE BUDGET VARIANCE
|
|
|
|
budget April 2012 |
actual April 2012 |
Variance |
| Manufacturing hours |
|
6250 |
|
5712 |
|
538 |
| cost per labor hour ($) |
|
15 |
|
9.66 |
|
5.34 |
| Actual mfg cost |
|
|
93750 |
|
55177.92 |
|
38572.08 |
b) Spending variance:
Actual overhead cost - (standard rate)(actual hrs of labor used).
Spending Variance ($):-30502.08
Note that: Variable manufacturing overhead costs is allocated to each dress on the basis of budgeted direct manufacturing labor-hours per dress.
c) Efficiency variance:( Actual quantity of inputs - standard quantity of inputs)( standard price)
Efficiency variance -8070
d) The situation is favorable because the company is efficent in the manufacture of dress as indicated by the following:
a. Compute the flexible-budget variance
b. Compute the spending variance
c. Compute the efficiency variance for variable manufacturing overhead
d. Comment on the results for the requirements above and provide possible explanation for them.