Question 1 - Marlow Manufacturing Company's standard price and cost data
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Sales Price
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$7.50
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Variable manufacturing cost
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3.00 per unit
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Fixed manufacturing costs
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3,000
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Fixed selling and administrative costs
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1,000
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a. Determine the sales and variable cost volume variances
b. Classify the variances as favorable (F) or (U) unfavorable
c. Comment on the usefulness of the variances with respect to performance evaluation and identify the member of the management team most likely to be responsible for these variances.
d. Determine the amount of fixed cost that will appear in the flexible budget
e. Determine the fixed cost based on planned activity and the fixed cost per unit based onactual activity. Assuming that Marlow uses information in the master budget to price the company's product, comment on how the volume variance could affect the company's profitability
Question 2 - Use the price and cost date from exercise 15-4. Assume that the actual sales price is $7.20 per unit and that the actual variable cost is $3.30 per unit. The actual fixed manufacturing cost is $2,850, and the selling and administrative expenses are $1,025.
a. Determine the flexible budget variances
b. Classify the variances as favorable (F) or unfavorable (U)
c. Provide another name for the fixed cost flexible budget variance
d. Comment on the usefulness of the variances with respect to performance evaluation and identify the member(s) of the management team who is (are) most likely to be responsible for these variances.
Question 3 - Holligan Publications established the following price and cost for a hardcover picture book that the company produces.
Standard Price and variable cost:
Sales Price $37.00
Materials 8.70
Labor 4.30
Overhead 6.10
General, selling and administrative 6.50
Planned fixed costs:
Manufacturing $128,000
General, selling and administrative 49,000
a. Prepare the pro forma income statement that would appear in the master budget
b. Prepare flexible budget income statements, assuming volumes of 29,000 and 31,000 units
c. Determine the sales and variable cost volume variances, assuming volume is actually 31,000 units.
d. Indicate whether the variances are favorable (F) or unfavorable (U)
e. Comment on how Holligan could use the variances to evaluate performance
Question 4 - Use the standard price and cost data supplied in problem 15-18. Assume that Holligan actually produced and sold 31,000 books. The actual sales price and costs incurred follow.
Actual Price and variable cost:
Sales Price $36.00
Materials 9.10
Labor 4.10
Overhead 6.20
General, selling and administrative 6.10
Actual fixed costs:
Manufacturing $120,000
General, selling and administrative 55,000
a. Determine the flexible budget variances. Provide another name for the fixed cost flexible budget variance
b. Indicate whether each variance is favorable (F) or unfavorable (U)
c. Identify the management position responsible for each variance. Explain what could have caused the variance.
Question 5 - Sam Yu, the president of Centech Computer Services, needs your help. He wonders about the potential effects on the firm's net income if he changes the service rate that the firm charges its customers. The following basic data pertain to fiscal year 2009.
Standard rate and variable costs:
Service rate per hour $83.00
Labor $40.00
Overhead $7.10
General, selling and administrative $4.40
Expected fixed cost
Facility repair $500.000.00
General, selling and administrative 130,000.00
a. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 27,000 hours of services in 2009.
b. A marketing consultant suggests to Mr. Yu that the service rate may affect the number fo service hours that the firm can achieve. According to the consultant's analysis, if Centech charges customers $78 per hour, the firm can achieve 33,000 hours of services. Prepare a flexible budget using the consultant's assumption.
c. The same consultant also suggests that if the firm raises its rate to $88 per hour, the number of service hours will decline 22,000. Prepare a flexible budget using the new assumption.
d. Evaluate the three possible outcomes you determined in a, b and c and recommend a pricing strategy.