Harold’s Roof Repair has provided the following data concerning its costs: |
Fixed Cost per Month | Cost per Repair-Hour |
Wages and salaries | $ | 21,400 | $ | 15.00 | |
Parts and supplies | $ | 7.00 | |||
Equipment depreciation | $ | 2,740 | $ | .30 | |
Truck operating expenses | $ | 5,780 | $ | 1.50 | |
Rent | $ | 4,680 | |||
Administrative expenses | $ | 3,820 | $ | .40 | |
For example, wages and salaries should be $21,400 plus $15.00 per repair-hour. The company expected to work 2,600 repair-hours in June, but actually worked 2,500 repair-hours. The company expects its sales to be $46.00 per repair-hour. |
Required: |
Compute the company’s activity variances for June. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.) |
Harold's Roof Repair Activity Variances For the Month Ended June 30 | ||
Revenue | $ | U |
Expenses: | ||
Wages and salaries | F | |
Parts and supplies | F | |
Equipment depreciation | F | |
Truck operating expenses | F | |
Rent | None | |
Administrative expenses | F | |
Total expense | F | |
Net operating income | $ | U |
Explanation:
Harold's Roof Repair Activity Variances For the Month Ended June 30 | |||||||
Planning Budget | Flexible Budget | Activity Variances | |||||
Repair-hours (q) | 2,600 | 2,500 | |||||
Revenue ($46.00q) | $ | 119,600 | $ | 115,000 | $ | 4,600 | U |
Expenses: | |||||||
Wages and salaries ($21,400 + $15.00q) | 60,400 | 58,900 | 1,500 | F | |||
Parts and supplies ($7.00q) | 18,200 | 17,500 | 700 | F | |||
Equipment depreciation ($2,740 + $.30q) | 3,520 | 3,490 | 30 | F | |||
Truck operating expenses ($5,780 + $1.50q) | 9,680 | 9,530 | 150 | F | |||
Rent ($4,680) | 4,680 | 4,680 | 0 | None | |||
Administrative expenses ($3,820 + $.40q) | 4,860 | 4,820 | 40 | F | |||
Total expense | 101,340 | 98,920 | 2,420 | F | |||
Net operating income | $ | 18,260 | $ | 16,080 | $ | 2,180 | U |
The Toque Cooking Academy runs short cooking courses at its small campus. Management has identified two cost drivers that it uses in its budgeting and performance reports—the number of courses and the total number of students. For example, the school might run four courses in a month and have a total of 61 students enrolled in those four courses. Data concerning the company’s cost formulas appear below: |
Fixed Cost per Month | Cost per Course | Cost per Student | ||
Instructor wages | $2,920 | |||
Classroom supplies | $290 | |||
Utilities | $ | 1,230 | $55 | |
Campus rent | $ | 4,700 | ||
Insurance | $ | 2,400 | ||
Administrative expenses | $ | 3,700 | $44 | $4 |
For example, administrative expenses should be $3,700 per month plus $44 per course plus $4 per student. The company’s sales should average $880 per student. |
The actual operating results for October appear below: |
Actual | ||
Revenue | $ | 50,780 |
Instructor wages | $ | 10,960 |
Classroom supplies | $ | 17,540 |
Utilities | $ | 1,860 |
Campus rent | $ | 4,700 |
Insurance | $ | 2,540 |
Administrative expenses | $ | 3,546 |
Required: | |
1. | The Toque Cooking Academy expects to run four courses with a total of 61 students in October. Complete the company’s planning budget for this level of activity.(Input all amounts as positive values. Omit the "$" sign in your response.) |
Toque Cooking Academy Planning Budget For the Month Ended October 31 | |
Revenue | $ |
Expenses: | |
Instructor wages | |
Classroom supplies | |
Utilities | |
Campus rent | |
Insurance | |
Administrative expenses | |
Total expense | |
Net operating income | $ |
2. | The school actually ran four courses with a total of 59 students in October. Complete the company’s flexible budget for this level of activity. (Input all amounts as positive values. Omit the "$" sign in your response.) |
Toque Cooking Academy Flexible Budget For the Month Ended October 31 | |
Revenue | $ |
Expenses: | |
Instructor wages | |
Classroom supplies | |
Utilities | |
Campus rent | |
Insurance | |
Administrative expenses | |
Total expense | |
Net operating income | $ |
3. | Complete the flexible budget performance report that shows both activity variances and revenue and spending variances for October. (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.) |
Toque Cooking Academy Flexible Budget Performance Report For the Month Ended October 31 | ||||
Activity Variances | Revenue and Spending Variances | |||
Revenue | $ | U | $ | U |
Expenses: | ||||
Instructor wages | None | F | ||
Classroom supplies | F | U | ||
Utilities | None | U | ||
Campus rent | None | None | ||
Insurance | None | U | ||
Administrative expenses | F | F | ||
Total expense | F | F | ||
Net operating income | $ | U | $ | U |
Explanation:
1. |
Revenue ($880 × 61) = $53,680 |
Instructor wages ($2,920 × 4) = $11,680 |
Classroom supplies ($290 × 61) = $17,690 |
Utilities ($1,230 + ($55 × 4)) = $1,450 |
Administrative expenses ($3,700 + ($44 × 4) + ($4 × 61)) = $4,120 |
2. |
Revenue ($880 × 59) = $51,920 |
Instructor wages ($2,920 × 4) = $11,680 |
Classroom supplies ($290 × 59) = $17,110 |
Utilities ($1,230 + ($55 × 4)) = $1,450 |
Administrative expenses ($3,700 + ($44 × 4) + ($4 × 59)) = $4,112 |
3. |
Toque Cooking Academy Flexible Budget Performance Report For the Month Ended October 31 | ||||||||||||
Planning Budget | Activity Variances | Flexible Budget | Revenue and Spending Variances | Actual Results | ||||||||
Courses (q1) | 4 | 4 | 4 | |||||||||
Students (q2) | 61 | 59 | 59 | |||||||||
Revenue($880q2) | $ | 53,680 | $ | 1,760 | U | $ | 51,920 | $ | 1,140 | U | $ | 50,780 |
Expenses: | ||||||||||||
Instructor wages ($2,920q1) | 11,680 | 0 | None | 11,680 | 720 | F | 10,960 | |||||
Classroom supplies ($290q2) | 17,690 | 580 | F | 17,110 | 430 | U | 17,540 | |||||
Utilities ($1,230 + $55q1) | 1,450 | 0 | None | 1,450 | 410 | U | 1,860 | |||||
Campus rent ($4,700) | 4,700 | 0 | None | 4,700 | 0 | None | 4,700 | |||||
Insurance ($2,400) | 2,400 | 0 | None | 2,400 | 140 | U | 2,540 | |||||
Administrative expenses ($3,700 + $44q1 +$4q2) | 4,120 | 8 | F | 4,112 | 566 | F | 3,546 | |||||
Total expense | 42,040 | 588 | F | 41,452 | 306 | F | 41,146 | |||||
Net operating income | $ | 11,640 | $ | 1,172 | U | $ | 10,468 | $ | 834 | U | $ | 9,634 |
You have just been hired by SecuriDoor Corporation, the manufacturer of a revolutionary new garage door opening device. The president has asked that you review the company’s costing system and “do what you can to help us get better control of our manufacturing overhead costs.” You find that the company has never used a flexible budget, and you suggest that preparing such a budget would be an excellent first step in overhead planning and control. |
After much effort and analysis, you determined the following cost formulas and gathered the following actual cost data for April: |
Cost Formula | Actual Cost in April | ||
Utilities | $16,700 plus $.14 per machine-hour | $ | 21,020 |
Maintenance | $38,300 plus $1.50 per machine-hour | $ | 59,100 |
Supplies | $.40 per machine-hour | $ | 7,000 |
Indirect labor | $94,700 plus $1.80 per machine-hour | $ | 128,000 |
Depreciation | $68,400 | $ | 70,100 |
During April, the company worked 16,000 machine-hours and produced 10,000 units. The company had originally planned to work 18,000 machine-hours during April. |
Required: |
1. | Complete a report showing the activity variances for April. (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.) |
SecuriDoor Corporation Activity Variances For the Month Ended April 30 | ||
Utilities | $ | F |
Maintenance | F | |
Supplies | F | |
Indirect labor | F | |
Depreciation | None | |
Total | $ | F |
2. | Complete a report showing the spending variances for April. (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.) |
SecuriDoor Corporation Spending Variances For the Month Ended April 30 | ||
Utilities | $ | U |
Maintenance | F | |
Supplies | U | |
Indirect labor | U | |
Depreciation | U | |
Total | $ | U |
Explanation:
1. |
The activity variances are shown below: |
SecuriDoor Corporation Activity Variances For the Month Ended April 30 | |||||||
Planning Budget | Flexible Budget | Activity Variances | |||||
Machine-hours (q) | 18,000 | 16,000 | |||||
Utilities ($16,700 + $.14q) | $ | 19,220 | $ | 18,940 | $ | 280 | F |
Maintenance ($38,300 + $1.50q) | 65,300 | 62,300 | 3,000 | F | |||
Supplies ($.40q) | 7,200 | 6,400 | 800 | F | |||
Indirect labor ($94,700 + $1.80q) | 127,100 | 123,500 | 3,600 | F | |||
Depreciation ($68,400) | 68,400 | 68,400 | 0 | None | |||
Total | $ | 287,220 | $ | 279,540 | $ | 7,680 | F |
2. |
The spending variances are computed below: |
SecuriDoor Corporation Spending Variances For the Month Ended April 30 | |||||||
Flexible Budget | Actual Results | Spending Variances | |||||
Machine-hours (q) | 16,000 | 16,000 | |||||
Utilities ($16,700 + $.14q) | $ | 18,940 | $ | 21,020 | $ | 2,080 | U |
Maintenance ($38,300 + $1.50q) | 62,300 | 59,100 | 3,200 | F | |||
Supplies ($.40q) | 6,400 | 7,000 | 600 | U | |||
Indirect labor ($94,700 + $1.80q) | 123,500 | 128,000 | 4,500 | U | |||
Depreciation ($68,400) | 68,400 | 70,100 | 1,700 | U | |||
Total | $ | 279,540 | $ | 285,220 | $ | 5,680 | U |
The KGV Blood Bank, a private charity partly supported by government grants, is located on the Caribbean island of St. Lucia. The blood bank has just finished its operations for September, which was a particularly busy month due to a powerful hurricane that hit neighboring islands causing many injuries. The hurricane largely bypassed St. Lucia, but residents of St. Lucia willingly donated their blood to help people on other islands. As a consequence, the blood bank collected and processed over 20% more blood than had been originally planned for the month. |
A report prepared by a government official comparing actual costs to budgeted costs for the blood bank is given below. (The currency on St. Lucia is the East Caribbean dollar.) Continued support from the government depends on the blood bank’s ability to demonstrate control over its costs. |
KGV Blood Bank Cost Control Report For the Month Ended September 30 | |||||||
Planning Budget | Actual Results | Variances | |||||
Liters of blood collected | 600 | 780 | |||||
Medical supplies | $ | 6,960 | $ | 9,102 | $ | 2,142 | U |
Lab tests | 8,670 | 10,842 | 2,172 | U | |||
Equipment depreciation | 1,300 | 1,500 | 200 | U | |||
Rent | 1,300 | 1,300 | 0 | ||||
Utilities | 280 | 304 | 24 | U | |||
Administration | 14,360 | 14,625 | 265 | U | |||
Total expense | $ | 32,870 | $ | 37,673 | $ | 4,803 | U |
The managing director of the blood bank was very unhappy with this report, claiming that his costs were higher than expected due to the emergency on the neighboring islands. He also pointed out that the additional costs had been fully covered by payments from grateful recipients on the other islands. The government official who prepared the report countered that all of the figures had been submitted by the blood bank to the government; he was just pointing out that actual costs were a lot higher than promised in the budget. |
The following cost formulas were used to construct the planning budget: |
Medical supplies | $11.60q |
Lab tests | $14.45q |
Equipment depreciation | $1,300 |
Rent | $1,300 |
Utilities | $280 |
Administration | $13,400 + $1.60q |
Required: |
1. | Complete the performance report for September using the flexible budget approach. (Input all amounts as positive values.Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Round your answers to the nearest whole dollar amount. Omit the "$" sign in your response.) |
KGV Blood Bank Flexible Budget Performance Report For the Month Ended September 30 | ||||
Activity Variances | Spending Variances | |||
Medical supplies | $ | U | $ | U |
Lab tests | U | F | ||
Equipment depreciation | None | U | ||
Rent | None | None | ||
Utilities | None | U | ||
Administration | U | F | ||
Total expense | $ | U | $ | F |
Explanation:
Performance should be evaluated using a flexible budget performance report. In this case, the report will not include revenues. |
KGV Blood Bank | ||||||||||||
Flexible Budget Performance Report | ||||||||||||
For the Month Ended September 30 | ||||||||||||
Planning Budget | Activity Variances | Flexible Budget | Spending Variances | Actual Results | ||||||||
Liters of blood collected (q) | 600 | 780 | 780 | |||||||||
Medical supplies ($11.60q) | $ | 6,960 | $ | 2,088 | U | $ | 9,048 | $ | 54 | U | $ | 9,102 |
Lab tests ($14.45q) | 8,670 | 2,601 | U | 11,271 | 429 | F | 10,842 | |||||
Equipment depreciation ($1,300) | 1,300 | 0 | None | 1,300 | 200 | U | 1,500 | |||||
Rent ($1,300) | 1,300 | 0 | None | 1,300 | 0 | None | 1,300 | |||||
Utilities ($280) | 280 | 0 | None | 280 | 24 | U | 304 | |||||
Administration ($13,400 + $1.60q) | 14,360 | 288 | U | 14,648 | 23 | F | 14,625 | |||||
Total expense | $ | 32,870 | $ | 4,977 | U | $ | 37,847 | $ | 174 | F | $ | 37,673 |