Highlights:

CHAPTER 13 THE FLEXIBLE BUDGET AND STANDARD COSTING: DIRECT MATERIAL AND DIRECT LABOR

A flexible budget c ! "l # ! i$"%&t !t &%le i! ''e''i!g %"e& ti!g efficie!c#( U'i!g t)e budget !d t)e flexible budget f%& t)e "e&i%d t%get)e& *it) ctu l i!c%$e+ t)e %"e& ti!g i!c%$e , &i !ce c ! be c%$"uted !d 'e" & ted i!t% t)e ' le' ,%lu$e !d flexible budget , &i !ce'( T)e ' le' ,%lu$e , &i !ce i' t)e diffe&e!ce bet*ee! t)e $ 'te& budget !d t)e flexible budget( It $e 'u&e' t)e effect' %f c) !ge' i! ' le' u!it' %! ' le'+ ex"e!'e'+ c%!t&ibuti%! $ &gi!'+ !d %"e& ti!g i!c%$e( T)e flexible budget , &i !ce i' t)e diffe&e!ce bet*ee! t)e ctu l %"e& ti!g &e'ult !d t)e flexible budget( It $e 'u&e' efficie!c# i! u'i!g &e'%u&ce'( E't bli')i!g 't !d &d &e-ui&e' c &eful ! l#'i' %f %"e& ti%!'( A 't !d &d c ! be ! ide l 't !d &d %& cu&&e!tl# tt i! ble 't !d &d( A $ !uf ctu&i!g %"e& ti%! u'u ll# ) ' 't !d &d c%'t ')eet t) t det il' t)e 't !d &d -u !tit# !d 't !d &d c%'t f%& ll t)e 'ig!ific !t $ !uf ctu&i!g ele$e!t' %f t)e %"e& ti%!( A fi&$ c ! u'e cti,it# ! l#'i'+ )i't%&ic l d t + be!c)$ &.'+ $ &.et ex"ect ti%!+ !d 't& tegic deci'i%!' t% 'et t)e 't !d &d'( T#"ic l 't !d &d' i!clude 't !d &d' f%& di&ect $ te&i l' !d di&ect l b%&( C%$" &i!g ctu l di&ect $ te&i l' !d di&ect l b%& c%'t' t% 't !d &d c%'t' f%& di&ect $ te&i l' !d di&ect l b%&+ &e'"ecti,el#+ fi&$ c ! ide!tif# $ te&i l' "u&c) 'e "&ice , &i !ce+ $ te&i l' u' ge , &i !ce+ l b%& & te , &i !ce+ !d l b%& efficie!c# , &i !ce( Rece!t d, !ce' i! $ !uf ctu&i!g tec)!%l%g# 'uc) ' /IT+ flexible $ !uf ctu&i!g+ c%$"ute& i!teg& ted $ !uf ctu&i!g+ t%t l -u lit# $ ! ge$e!t+ !d t)e%&# %f c%!'t& i!t' ) ,e ) d g&e t i$" ct' %! $ !uf ctu&i!g !d 't !d &d c%'t'( A$%!g t)e i$" ct' &e dec&e 'ed 'ig!ific !ce %f $ te&i l' "u&c) 'e "&ice , &i !ce+ l b%& , &i !ce'+ !d , &i !ce' %f !%!0b%ttle!ec. %"e& ti%!'( T)e f%cu' i! u'i!g 't !d &d c%'t' ')%uld be %! i!flue!ci!g be) ,i%& *it) "%'iti,e &ei!f%&ce$e!t' !d $%ti, ti%!+ !%t %! "e! ltie' !d "u!i')$e!t'( U!&e '%! ble 't !d &d'+ 'ec&ec# i! 't !d &d 'etti!g'+ ut)%&it &i ! c%!t&%l+ "%%& c%$$u!ic ti%!+ i!flexibilit#+ u!f i& "e&f%&$ !ce e, lu ti%!+ u!e,e! &e* &d'+ !d exce''i,e e$") 'i' %! "&%fit' $%!g %t)e& f ct'+ %fte! $ .e g%%d 't !d &d c%'t '#'te$ f ilu&e(

Questions: Learning Objective 1: Ex lain the essence o! control s"ste#s in general an$ o erational control s"ste#s in articular%
1( Ex"l i! t)e !%ti%! %f c%!t&%l i! bu'i!e'' e!,i&%!$e!t(

2( 3) t i' %"e& ti%! l c%!t&%l4 5( 3) t i' fi! !ci l c%!t&%l4

167

Cost Management: A Strategic Emphasis 8e b# Bl%c)e&9St%ut9C%.i!'9C)e! : T)e McG& *0Hill C%$" !ie'+ 2;;6

8( 3) t i' , &i !ce4

<( 3) t i' $ ! ge$e!t b# exce"ti%!4

7( 3) t i' 't !d &d c%'t '#'te$4

Learning Objective &: 'istinguish bet(een e!!ectiveness an$ e!!icienc" as ects o! o erational er!or#ance% =( 3) t i' effecti,e!e''4

6( 3)# &e effecti,e %"e& ti%!' i$"%&t !t4

>( 3) t i' ! efficie!t %"e& ti%!4

1;( 3) t i' t)e %"e& ti!g i!c%$e , &i !ce4

16=

Cost Management: A Strategic Emphasis 8e b# Bl%c)e&9St%ut9C%.i!'9C)e! : T)e McG& *0Hill C%$" !ie'+ 2;;6

Learning Objective 3: 'evelo stan$ar$ costs !or ro$uct costing) er!or#ance evaluation) an$ control% 11( 3) t i' ! ide l 't !d &d4

12( 3) t i' cu&&e!tl# tt i! ble 't !d &d4

15( 3) t .i!d %f 't !d &d' i' *%&ld0cl '' fi&$ li.el# t% u'e4

18( 3) t &e t)e '%u&ce' t) t fi&$' %fte! u'e i! dete&$i!i!g ""&%"&i te 't !d &d'4

1<( 3) t i' cti,it# ! l#'i'4

17. 3) t i' t)e d, !t ge %f u'i!g be!c)$ &.' i! 'etti!g 't !d &d'4

1=( 3) t i' t &get c%'t t) t $ # l'% be u'ed i! 'etti!g 't !d &d'4

16( 3) t &e t)e t)&ee f cet' %f 't !d &d c%'t' f%& di&ect $ te&i l'4

1>( 3) t i' 't !d &d c%'t ')eet4

Study Guide : T)e McG& *0Hill C%$" !ie'+ 2;;6

166

Learning Objective *: 'evelo an$ a !inancial er!or#ance%

l" !lexible bu$gets !or evaluating short+ter#

2;( 3) t d%e' flexible budget %"e& ti!g i!c%$e , &i !ce i!clude4

21( 3) t i' ' le' "&ice , &i !ce4

22( 3) t i' flexible budget , &i ble ex"e!'e , &i !ce4

25( 3) t &e t)e t*% c%$"%!e!t' %f di&ect $ te&i l , &i !ce+ !d )%* &e t)e# c%$"uted4

28( 3) t i' $ te&i l' u' ge & ti%4

2<( 3) t i' di&ect l b%& , &i !ce !d *) t &e it' c%$"%!e!t'4

27( 3) t i' flexible budget4

2=( 3) t i' t)e flexible budget , &i !ce4 26( 3) t &e t)e $ ?%& di'ti!cti%!' bet*ee! t)e $ 'te& budget !d t)e flexible budget4
16> Cost Management: A Strategic Emphasis 8e b# Bl%c)e&9St%ut9C%.i!'9C)e! : T)e McG& *0Hill C%$" !ie'+ 2;;6

2>( 3) t i' ' le' ,%lu$e %& cti,it# , &i !ce4

5;( 3) t i' t)e %"e& ti!g i!c%$e flexible budget , &i !ce4

Learning Objective ,: Recogni-e behavioral i# lications in i# le#enting stan$ar$ cost s"ste#s% 51( 3) t i' t)e i!flue!ce %f t)e c%!te$"%& &# $ !uf ctu&i!g e!,i&%!$e!t %! %"e& ti%! l c%!t&%l !d 't !d &d c%'ti!g4

52( 3) t &e t)e be) ,i%& l i$"lic ti%!' i! i$"le$e!ti!g 't !d &d c%'t'4

Learning Objective . /A en$ix0: Recor$ #anu!acturing cost !lo(s an$ associate$ variances in a stan$ar$ cost s"ste#% 55( B&iefl# de'c&ibe t)e c%'t fl%*' !d ledge& e!t&ie' i! 't !d &d c%'ti!g '#'te$(

Study Guide : T)e McG& *0Hill C%$" !ie'+ 2;;6

1>;

1uggeste$ res onses to the above 2uestions: 1( Ex"l i! t)e !%ti%! %f c%!t&%l i! bu'i!e'' e!,i&%!$e!t( Control refers to a set of procedures, tools, and systems that organizations use to ensure that progress is being made toward accomplishing the goals and objecti es of the organization. 2( 3) t i' %"e& ti%! l c%!t&%l4 !perational control refers to the subset of an organization"s o erall management accounting and control system that focuses on the short#term operational performance. 5( 3) t i' fi! !ci l c%!t&%l4 $inancial control is accomplished by comparing actual to budgeted financial results. %hus, budgets are useful in the financial control process because they pro ide the standard against which actual financial results can be compared. 8( 3) t i' , &i !ce4 &ariance is the difference between budgeted and actual financial results. <( 3) t i' $ ! ge$e!t b# exce"ti%!4 't suggests that operations be left (as is,) e*cept for relati ely large ariances. %hose items appear to be out of control and need management"s attention. 7( 3) t i' 't !d &d c%'t '#'te$4 A standard cost system is one in which standard, not actual, costs flow through the formal accounting records. =( 3) t i' effecti,e!e''4 Effecti eness refers to attainment of the goal set for the operation. 6( 3)# &e effecti,e %"e& ti%!' i$"%&t !t4 Effecti e operations are essential for a successful strategy. 'neffecti e operations can lead to a disaster. >( 3) t i' ! efficie!t %"e& ti%!4 An efficient operation wastes no resources.

1>1

Cost Management: A Strategic Emphasis 8e b# Bl%c)e&9St%ut9C%.i!'9C)e! : T)e McG& *0Hill C%$" !ie'+ 2;;6

1;( 3) t i' t)e %"e& ti!g i!c%$e , &i !ce4 !perating income ariance of a period is the difference between the actual operating income of the period and master budget operating income projected for the period. 11( 3) t i' ! ide l 't !d &d4 An ideal standard is a standard that demands perfect implementation and ma*imum efficiency in e ery aspect of the operation. 't is not easily attainable and could discourage employees rather than ser ing as a moti ating factor. 12( 3) t i' cu&&e!tl# tt i! ble 't !d &d4 A currently attainable standard sets the performance criterion at a le el that wor+ers with proper training and e*perience can attain most of the time without e*traordinary effort. 15( 3) t .i!d %f 't !d &d' i' *%&ld0cl '' fi&$ li.el# t% u'e4 A world#class firm can ill afford any inefficiency and, most li+ely, would use ideal standards for its operations, but the achie ement of goals are often the function of using state of the art e,uipment and trained wor+ers who operate those systems. 18( 3) t &e t)e '%u&ce' t) t fi&$' %fte! u'e i! dete&$i!i!g ""&%"&i te 't !d &d'4 A firm can use one or more of the following sources in determining standards: acti ity analysis historical data benchmar+ing mar+et e*pectation strategic decisions 1<( 3) t i' cti,it# ! l#'i'4 Acti ity analysis is the process of identifying, delineating, and e aluating the acti ities re,uired to complete a job, project, or operation. 17( 3) t i' t)e d, !t ge %f u'i!g be!c)$ &.' i! 'etti!g 't !d &d'4 -enchmar+ing has the ad antage of using the best performance anywhere as the standard. .sing such standards can help the firm to maintain a competiti e edge in today"s global competition. 1=( 3) t i' t &get c%'t t) t $ # l'% be u'ed i! 'etti!g 't !d &d'4
Study Guide : T)e McG& *0Hill C%$" !ie'+ 2;;6 1>2

%arget costing for a product is the cost that will yield a desired profit margin for the product. 't is computed as the difference between the sales price and the desired profit margin for the product. 16( 3) t &e t)e t)&ee f cet' %f 't !d &d c%'t' f%& di&ect $ te&i l'4 %he three facets of standard costs for direct materials are ,uality, ,uantity, and price. 1>( 3) t i' 't !d &d c%'t ')eet4 A standard cost sheet specifies for a product the standard price and ,uantity of each manufacturing cost element for the production of one unit of the product. 2;( 3) t d%e' flexible budget %"e& ti!g i!c%$e , &i !ce i!clude4 %he operating income ariance includes sales price ariance, fle*ible budget ariable e*pense ariance, and fi*ed e*pense fle*ible budget ariance. 21( 3) t i' t)e ' le' "&ice , &i !ce4 %he sales price ariance is the difference between the total actual sales re enue of the period and the total fle*ible budget sales re enue for the units sold during the period. 't is computed by ta+ing the difference between actual selling price and budgeted selling price times actual units sold. 22( 3) t i' t)e flexible budget , &i ble ex"e!'e , &i !ce4 %he fle*ible budget ariable e*pense ariance is the difference between the actual ariable e*penses incurred and the total standard ariable e*penses for the units sold. %his ariance includes direct materials ariances, direct labor ariances, ariable o erhead ariances, and ariable selling and administrati e e*penses ariances. At this point and without additional information, they cannot be bro+en down into their price and efficiency components. 25( 3) t &e t)e t*% c%$"%!e!t' %f di&ect $ te&i l , &i !ce+ c%$"uted4 !d )%* &e t)e#

/irect material ariances include material price ariance and material usage ariance. 0rice ariance can be computed by ta+ing the difference between actual price and fle*ible budget 1standard2 price times the actual ,uantity purchased 1purchase price ariance2 or times the actual ,uantity used 1material used price ariance2. .sage ariance can be computed by ta+ing the actual ,uantity used minus standard ,uantity 1allowed ,uantity per unit times number of units produced2 times standard prices. %he former ariance is an indicator of purchasing efficiency while the latter is an indicator of manufacturing efficiency. 28( 3) t i' t)e $ te&i l' u' ge & ti%4
1>5 Cost Management: A Strategic Emphasis 8e b# Bl%c)e&9St%ut9C%.i!'9C)e! : T)e McG& *0Hill C%$" !ie'+ 2;;6

Materials usage ratio is the ratio of ,uantity used o er ,uantity purchased. A low ratio may be indicati e of high stoc+ le els. 2<( 3) t i' di&ect l b%& , &i !ce !d *) t &e it' c%$"%!e!t'4 /irect labor ariance is the difference between actual direct labor cost and the fle*ible budget amount. 't is composed of direct labor rate ariance 134&2 and direct labor efficiency ariance 13E&2. 34& is computed by ta+ing the difference between the actual and standard hourly wage rate multiplied by the actual direct labor hours used in production. 3E& is the difference between the actual and standard direct labor hours for the units manufactured multiplied by the standard hourly wage rate. 27( 3) t i' flexible budget4 %he fle*ible budget is a budget that adjusts re enues and costs for changes in output achie ed. 2=( 3) t i' t)e flexible budget , &i !ce4 %he fle*ible budget ariance is the difference between the actual operating result and the fle*ible budget at the actual operating le el of the period. 26( 3) t &e t)e $ ?%& di'ti!cti%!' bet*ee! t)e $ 'te& budget !d t)e flexible budget4 %he master budget is always prepared before the period in ,uestion. 't is for a single acti ity le el, and is prepared for all aspects of an operation. !n the other hand, the fle*ible budget may be prepared before, during, or after the period being analyzed. 't may be for one or more le els of acti ity, and it is often prepared for selected aspects of an operation. 2>( 3) t i' ' le' ,%lu$e %& cti,it# , &i !ce4 %he sales olume ariance measures the effect of sales, e*penses, or operating income of changes in units of sales. 5;( 3) t i' t)e %"e& ti!g i!c%$e flexible budget , &i !ce4 %he operating income fle*ible budget ariance is the difference between the fle*ible budget operating income and the actual operating income. 51( 3) t i' t)e i!flue!ce %f t)e c%!te$"%& &# $ !uf ctu&i!g e!,i&%!$e!t %! %"e& ti%! l c%!t&%l !d 't !d &d c%'ti!g4 Computation of material price ariance is less important. Most such companies enter into long#term contracts with reputable suppliers. Computation of labor efficiency ariance in high tech firms with fle*ible manufacturing systems is also less significant. %hese firms attach little or no importance to labor rate and efficiency ariances. %hese firms emphasize zero#defect and continuous impro ement in ,uality. Considering the
Study Guide : T)e McG& *0Hill C%$" !ie'+ 2;;6 1>8

theory of constraint, the focus on impro ing o erall efficiency of a firm lies in impro ing throughput time that relates to efficiency in bottlenec+ areas. 52( 3) t &e t)e be) ,i%& l i$"lic ti%!' i! i$"le$e!ti!g 't !d &d c%'t'4 %he focus should be on influencing beha ior through positi e reinforcement. .nreasonable standards and e*pectations can ma+e a good standard a failure. 55( B&iefl# de'c&ibe t)e c%'t fl%*' !d ledge& e!t&ie' i! 't !d &d c%'ti!g '#'te$( 'tems purchased are debited to a raw materials in entory account at standard cost. %he material purchased price ariance is preferably recognized at the point of purchase. Standard usage 1what should ha e been used for the products produced at standard rates2 is charged to wor+ in process. Any difference is charged to material usage ariance. 3abor is also charged to production at standard rates for what should ha e been used. Any difference in rate and efficiency is accumulated in 34 and 3E ariance accounts. .nits completed are transferred to finished goods in entory at standard cost. .nits sold are cleared from finished goods in entory and charged to cost of goods sold # again at standard prices.

3ulti le choice 2uestions:

1( A! effecti,e %&g !i@ ti%! A * 'te' !% &e'%u&ce' bA tt i!' t)e g% l' 'et f%& t)e %"e& ti%!( cA u'e' 't !d &d c%'t'( dA ) ' l &ge $ &.et ') &e( eA ll %f t)e b%,e( 2( O"e& ti!g i!c%$e , &i !ce f%& "e&i%d i' t)e diffe&e!ce bet*ee! A t)e ctu l %"e& ti!g i!c%$e !d t)e $ 'te& budget %"e& ti!g i!c%$e f%& t)e "e&i%d( bA t)e ctu l c%!t&ibuti%! $ &gi! !d t)e "&%?ected c%!t&ibuti%! $ &gi!( cA t)e ctu l g&%'' "&%fit !d t)e budgeted g&%'' "&%fit( dA t)e ctu l ' le' !d t)e budgeted ' le'( eA !%!e %f t)e b%,e( 5( T)e flexible budget i' budget t) t A d?u't' &e,e!ue' !d fixed c%'t' f%& c) !ge' i! %ut"ut c)ie,ed( bA d?u't' &e,e!ue' !d , &i ble c%'t' f%& c) !ge' i! %ut"ut c)ie,ed( cA d?u't' &e,e!ue' !d ll c%'t' f%& c) !ge' i! %ut"ut c)ie,ed( dA d?u't' fixed !d , &i ble c%'t' f%& c) !ge' i! %ut"ut c)ie,ed( eA d?u't' &e,e!ue' %!l# f%& c) !ge' i! %ut"ut c)ie,ed( 8( A flexible budget i' "&e" &ed A %!l# bef%&e t)e 'ub?ect "e&i%d( bA f%& 'i!gle cti,it# le,el( cA f%& 'elected '"ect' %f %"e& ti%!'(
1>< Cost Management: A Strategic Emphasis 8e b# Bl%c)e&9St%ut9C%.i!'9C)e! : T)e McG& *0Hill C%$" !ie'+ 2;;6

dA eA

!d b !d c

<( A $ 'te& budget i' "&e" &ed A %!l# bef%&e t)e 'ub?ect "e&i%d( bA f%& 'i!gle cti,it# le,el( cA 'elected '"ect' %f %"e& ti%!'( dA !d b eA !d c 7( T)e ' le' ,%lu$e , &i !ce A $e 'u&e' t)e effect %! ' le' %f c) !ge' i! u!it' %f ' le'( bA $e 'u&e' t)e effect %! ex"e!'e' %f c) !ge' i! u!it' %f ' le'( cA $e 'u&e' t)e effect %! %"e& ti!g i!c%$e %f c) !ge' i! u!it' %f ' le'( dA ll %f t)e b%,e( eA !%!e %f t)e b%,e( =( Flexible budget , &i !ce A $e 'u&e' t)e effect %! ' le' %f c) !ge' i! ' le' "&ice'( bA $e 'u&e' t)e effect %! ex"e!'e' %f c) !ge' i! c%'t "&ice'( cA $e 'u&e' t)e effect %! %"e& ti!g i!c%$e ' &e'ult %f c) !ge' i! ' le' "&ice' !d9%& c%'t "&ice'( dA ll %f t)e b%,e( eA !%!e %f t)e b%,e( 6( A 't A bA cA dA eA !d &d c%'t i' t)e c%'t fi&$ ex"ect' t% i!cu& f%& ! %"e& ti%!( i' ' $e ' budgeted c%'t( i' ' $e ' flexible budget( i' ' $e ' ctu l c%'t( !d c(

>( A cu&&e!tl# tt i! ble 't !d &d i' 't !d &d t) t A de$ !d "e&fect i$"le$e!t ti%! !d $ xi$u$ efficie!c# i! e,e&# '"ect %f t)e %"e& ti%!( bA i' ex"ected t% be c)ie,ed *it)i! 5 t% <0#e & ti$e '" !( cA 'et' t)e "e&f%&$ !ce c&ite&i%! t le,el t) t *%&.e&' *it) "&%"e& t& i!i!g !d ex"e&ie!ce c ! tt i! $%'t %f t)e ti$e *it)%ut ext& %&di! &# eff%&t( dA i' ' $e ' ctu l c%'t( eA !%!e %f t)e b%,e( 1;( A *%&ld cl '' fi&$ %fte! u'e' A cu&&e!tl# tt i! ble 't !d &d'( bA c)ie, ble 't !d &d'( cA ide l 't !d &d'( dA !eg%ti ble 't !d &d'(
Study Guide : T)e McG& *0Hill C%$" !ie'+ 2;;6 1>7

eA !%!e %f t)e b%,e( 11( It c ! be ' id t) t $ ! ge&' ge!e& ll# A $ ! ge c%'t'( bA $ ! ge cti,itie'( cA $ ! ge ex"e!'e'( dA $ ! ge &e,e!ue'( eA $ ! ge "&%fit'( 12( A fi&$ c ! u'e t)i' Bt)e'eA '%u&ceB'A i! dete&$i!i!g 't !d &d': A cti,it# ! l#'i'( bA )i't%&ic l d t ( cA be!c)$ &.i!g( dA $ &.et ex"ect ti%!' %& 't& tegic deci'i%!'( eA ll %f t)e b%,e( 15( T &get c%'t f%& "&%duct i' A t)e diffe&e!ce bet*ee! t)e ' le' "&ice !d t)e de'i&ed "&%fit $ &gi! %f t)e "&%duct( bA t)e diffe&e!ce bet*ee! t)e ' le' "&ice !d t)e de'i&ed c%'t %f t)e "&%duct( cA t)e diffe&e!ce bet*ee! t)e de'i&ed c%'t !d t)e de'i&ed "&%fit f%& t)e "&%duct( dA t)e diffe&e!ce bet*ee! t)e budgeted c%'t !d t)e 't !d &d c%'t %f t)e "&%duct( eA t)e diffe&e!ce bet*ee! t)e 't !d &d c%'t !d t)e ctu l c%'t %f t)e "&%duct( 18( St A bA cA dA eA !d &d0'etti!g "&%cedu&e i' l* #' " &tici" ti,e( i' l* #' ut)%&it ti,e( i' !eit)e& " &tici" ti,e %& ut)%&it ti,e( i' eit)e& " &tici" ti,e %& ut)%&it ti,e( !%!e %f t)e b%,e(

1<( T)e f cet' %f 't !d &d c%'t' f%& $ te&i l' &e A -u lit# !d "&ice( bA -u !tit# !d "&ice( cA -u lit# !d -u !tit#( dA -u lit#+ -u !tit#+ !d "&ice( eA -u lit#+ -u !tit#+ ,e!d%& &e"ut ti%!+ !d "&ice( 17( I! c%!te$"%& &# $ !uf ctu&i!g e!,i&%!$e!t+ t)e&e i' A $%&e e$") 'i' %! $ te&i l "u&c) 'e "&ice !d u' ge , &i !ce'( bA $%&e e$") 'i' %! di&ect l b%& & te !d efficie!c# , &i !ce'( cA $%&e e$") 'i' %! -u lit# "&%duct' !d cu't%$e& ' ti'f cti%!( dA $%&e e$") 'i' %! t)&%ug)"ut efficie!c#( eA c !d d(

Exercises:
E1(
1>= Cost Management: A Strategic Emphasis 8e b# Bl%c)e&9St%ut9C%.i!'9C)e! : T)e McG& *0Hill C%$" !ie'+ 2;;6

N ,id Fu&!itu&e $ !uf ctu&i!g u'e' > # &d' %f f b&ic A i! $ !uf ctu&e %f it' '%f ' !d <(< # &d' %f f b&ic B i! $ !uf ctu&e %f it' l%,e 'e t'( T)e budgeted "&ice' &e C17 "e& # &d f%& A !d C12 "e& # &d f%& B( F%& t)e $%!t) %f M # 2;;2+ 5+2;; # &d' %f A !d 2+8;; # &d' %f B *e&e "u&c) 'ed f%& C=>+2;;( F&%$ t)i' $%u!t C<2+6;; * ' f%& f b&ic A( A t%t l %f 51; '%f ' !d 58; l%,e 'e t' *e&e $ !uf ctu&ed i! t)i' ti$e "e&i%d( T)e ctu l u' ge $%u!ted t% 5+;<; # &d' %f A !d 1+>;; # &d' %f B( Re2uire$: a0 Co# ute #aterial urchase rice variance !or A an$ 4% b0 Co# ute #aterial usage variance !or A an$ 4% c0 Reco# ute #aterial rice variance assu#ing that rice variance is $eter#ine$ at the oint o! usage% $0 Pre are journal entries base$ on a an$ b above% E2( N )id L $" C%$" !# u'e' t*% g& de' %f l b%&( G& de %!e i' budgeted t C6 ! )%u& !d g& de 2 i' budgeted t C11 ! )%u&( E c) l $" &e-ui&e' 1(< )%u&' %f g& de 1 l b%& !d (6 )%u&' %f g& de 2( A t%t l %f 76< l $"' *e&e "&%duced i! N%,e$be& 2;;2( G& de 1 l b%& f%& t)e "e&i%d $%u!ted t% 1+1;; )%u&'+ !d <7; )%u&' %f g& de 2 l b%& *e&e u'ed( T%t l " #&%ll f%& * ge e$"l%#ee' $%u!ted t% C1<+8;;( C15+6<; %f t)i' $%u!t i' f%& di&ect l b%&+ !d f&%$ t)i' t%t l+ C6+2<; i' f%& g& de 1 l b%&( Re2uire$: a0 Co# uter labor e!!icienc" variance !or gra$e 1 an$ & labor% b0 Co# uter labor rate variance !or gra$e 1 an$ & labor% c0 Pre are journal entries base on a an$ b above%

Study Guide : T)e McG& *0Hill C%$" !ie'+ 2;;6

1>6

E5( / $')id Ce& $ic' ) ' '%ld 12;; f !c# ? &' t C2> "iece f%& t)e $%!t) %f Oct%be& 2;;2( T)e'e ite$' ctu ll# c%'t t)e fi&$ C21 "iece( T)e %&igi! l budget * ' 'et t 1;;; u!it' t C51 "iece *it) f%&ec 'ted c%'t %f C1>(< "e& u!it( T)e %!l# %t)e& c%'t * ' fixed 'elli!g ex"e!'e %f C2+>;; t) t * ' budgeted t C2+7<;( Re2uire$: a0 Pre are an inco#e state#ent (ith colu#ns !or actual) !lexible bu$get an$ #aster bu$get% b0 Co# ute activit" variance in ter#s o! sales) costs) an$ o erating inco#e% c0 Co# ute !lexible bu$get variance in ter#s o! sales) costs) an$ o erating inco#e% $0 Reconcile the total o erating inco#e variance an$ su##ari-e "our (or5 in one Table% E8( Se &c) t)e i!te&!et f%& !# fi! !ci l %& $ &.eti!g i!f%&$ ti%! %! Me&cede' Be!@+ T%#%t + !d H%!d ,e)icle'( Di'cu'' *)# i!, &i bl# t)e "&%duct' %f t)e'e fi&$' ) ,e bee! u'ed b# %t)e& c & $ !uf ctu&e&' ' be!c)$ &.' f%& t)ei& "&%ducti%! !d 't !d &d c%'ti!g '#'te$'( Correct ans(ers to #ulti le choice 2uestions: 1+b6 &+a6 3+b6 *+c6 ,+$6 .+$6 7+$6 8+a6 9+c6 1:+c6 11+b6 1&+e6 13+a6 1*+$6 1,+$6 1.+e% 1uggeste$ ans(ers to exercises: E1( A M te&i l "u&c) 'e "&ice , &i !ce: MDDE BAA MDDE BBA: =>2;; 0 <26;; G 278;; TOTAL MDDE bA M te&i l u' ge , &i !ce: MUE BAA MUE BBA TOTAL MUE cA M te&i l "&ice , &i !ce: MDE BAA : <26;; 9 52;; G 17(< MDE BBA : 278;; 9 28;; G 11 TOTAL MDE B17(<; 0 17A F 5+;<; B11 0 12A F 1+>;; <2+6;; 0 B5+2;; F 17A 27+8;; H B2+8;; F 12A 1+7;; U 2+8;; F 6;; F 8+17; U 57;U 8+<2; U 1+<2< U 1+>;; F 5=< F

B5+;<; H I51; F >JA F 17 B1+>;; H I58; F <(<JA F 12

N%te: It i' "&efe& ble t% c%$"ute $ te&i l "&ice , &i !ce t t)e "%i!t %f "u&c) 'e & t)e& t) ! t t)e "%i!t %f u' ge( T)e &e '%! i' t) t i! t)i' $ !!e& diffe&e!ce' bet*ee! "u&c) 'e "&ice !d e'ti$ ted "&ice &e i$$edi tel# ide!tified f%& $ ! ge$e!tK' i!f%&$ ti%! %& cti%!( I! dditi%!+ i!,e!t%&# *%uld be $ i!t i!ed t 't !d &d c%'t *)ic) *ill be e 'ie& t% $ i!t i! !d .ee" t& c. %f(

dA /%u&! l e!t&ie': R * $ te&i l i!,e!t%&#

1>>

6;+;;;
Cost Management: A Strategic Emphasis 8e b# Bl%c)e&9St%ut9C%.i!'9C)e! : T)e McG& *0Hill C%$" !ie'+ 2;;6

MDDE BAA Acc%u!t' " # ble MDDE BBA 3%&. i! "&%ce'' MUE BAA MUE BBA R * $ te&i l i!,e!t%&# E2(

1+7;; =>+2;; 2+8;; 7=+;6; 8+17; 57; =1+7;;

A L b%& efficie!c# , &i !ce: LEE B1A LEEB2A TOTAL LEE bA L b%& & te , &i !ce: LRE B1A LRE B2A: 156<; 0 62<; G <7;; TOTAL LRE T%t l l b%& , &i !ce: LE B1A LE B2A T%t l l b%& , &i !ce cA /%u&! l e!t&ie': D #&%ll 'u$$ &# 3 ge' " # ble+ etc( Ad$i!i't& ti%! Ex"e!'e 3%&. i! "&%ce'' LEE 1 LEE 2 LRE 1 LRE 2 D #&%ll 'u$$ &# 1<+8;;

B1+1;; H I76< F 1(<JA F 6 B<7; H I76< F (6;JA F 11

<6; U 152 U =12 U <<; F <7; F 111; F 5; U 826 F 5>6 F

B6+2<; H I1+1;; F 6JA B<+7;; H I<7; F 11JA B6+2<; H I76< F 1(< F 6JA B<+7;; H I76< F (6; F 11JA

1<+8;; 1+<<; 18+286 <6; 152 <<; <7; 1<+8;;

Study Guide : T)e McG& *0Hill C%$" !ie'+ 2;;6

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E5( A i!c%$e 't te$e!tL bA cti,it# , &i !ce+ cA flexible budget , &i !ce
Item Actual Sales in units 1,200 Price 29 Sales revenue 3 ,!00 &'st '( sales, 21, 19.) 2),200 *r'ss +r'(it 9,#00 Sellin, ex+ense 2,900 Inc'me #,"00 Flexible B 1,200 31 3",200 23, 00 13,!00 2,#)0 11,1)0 Master B. 1,000 31 31,000 19,)00 11,)00 2,#)0 !,!)0 Activity V F. B. Var. 200 31 #,200 $2, 00% 3,900 1,!00 2,300 $ ,200% 2)0 2,300 $ , )0%

dA I!c%$e &ec%!cili ti%!: Budgeted i!c%$e M Acti,it# , &i !ce 0 Flexible budget , &i !ce G Actu l i!c%$e 6+6<; 2+5;; 0 8+8<; 7+=;;

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Cost Management: A Strategic Emphasis 8e b# Bl%c)e&9St%ut9C%.i!'9C)e! : T)e McG& *0Hill C%$" !ie'+ 2;;6