Computing and interpreting sales variances

Exercise 23-2 Preparation of flexible budgets LO P1

Tempo Company’s fixed budget for the first quarter of calendar year 2013 reveals the following.


Sales (12,000 units)			$	2,604,000
Cost of goods sold
Direct materials	$	294,840
Direct labor		524,280
Production supplies		328,800
Plant manager salary		94,840		1,242,760

Gross profit				1,361,240
Selling expenses
Sales commissions		94,920
Packaging		182,520
Advertising		100,000		377,440

Administrative expenses
Administrative salaries		144,840
Depreciation—office equip.		114,840
Insurance		84,840
Office rent		94,840		439,360

Income from operations			$	544,440

Prepare flexible budgets that show variable costs per unit, fixed costs, and three different flexible budgets for sales volumes of 10,000, 12,000, and 14,000 units. (Round cost per unit to 2 decimal places.)

Exercise 23-3 Preparation of a flexible budget performance report LO P1

Solitaire Company’s fixed budget performance report for June follows. The $623,000 budgeted expenses include $585,620 variable expenses and $37,380 fixed expenses. Actual expenses include $49,380 fixed expenses.

	Fixed Budget		Actual Results		Variances
Sales (in units)		8,300		10,700

Sales (in dollars)	$	830,000	$	1,070,000	$	240,000	F
Total expenses		623,000		747,600		124,600	U

Income from operations	$	207,000	$	322,400	$	115,400	F

Prepare a flexible budget performance report showing any variances between budgeted and actual results. List fixed and variable expenses separately. (Do not round intermediate calculations.)

Exercise 23-4 Preparation of a flexible budget performance report LO P1

Bay City Company’s fixed budget performance report for July follows. The $513,000 budgeted expenses include $350,000 variable expenses and $163,000 fixed expenses. Actual expenses include $153,000 fixed expenses.

	Fixed Budget		Actual Results		Variances
Sales (in units)		7,000		5,900

Sales (in dollars)	$	560,000	$	525,100	$	34,900	U
Total expenses		513,000		476,000		37,000	F

Income from operations	$	47,000	$	49,100	$	2,100	U

Prepare a flexible budget performance report that shows any variances between budgeted results and actual results. List fixed and variable expenses separately. (Do not round intermediate calculations.)

Exercise 23-6 Computation of total variable and fixed overhead variances LO P3

Sedona Company set the following standard costs for one unit of its product for 2013.


Direct material (30 Ibs. @ $2.20 per Ib.)	$	66.00
Direct labor (20 hrs. @ $4.20 per hr.)		84.00
Factory variable overhead (20 hrs. @ $2.20 per hr.)		44.00
Factory fixed overhead (20 hrs. @ $1.10 per hr.)		22.00

Standard cost	$	216.00

The $3.30 ($2.20 + $1.10) total overhead rate per direct labor hour is based on an expected operating level equal to 60% of the factory’s capacity of 68,000 units per month. The following monthly flexible budget information is also available.

	Operating Levels (% of capacity)

		55%		60%		65%
Budgeted output (units)		37,400		40,800		44,200
Budgeted labor (standard hours)		748,000		816,000		884,000
Budgeted overhead (dollars)
Variable overhead	$	1,645,600	$	1,795,200	$	1,944,800
Fixed overhead		897,600		897,600		897,600

Total overhead	$	2,543,200	$	2,692,800	$	2,842,400

During the current month, the company operated at 55% of capacity, employees worked 728,000 hours, and the following actual overhead costs were incurred. (Round “OH costs per hour” to 2 decimal places.)


Variable overhead costs	$	1,625,000
Fixed overhead costs		924,300

Total overhead costs	$	2,549,300

Exercise 23-7A Computation and interpretation of overhead spending, efficiency, and volume variances LO P3

[The following information applies to the questions displayed below.]

Sedona Company set the following standard costs for one unit of its product for 2013.


Direct material (30 Ibs. @ $2.00 per Ib.)	$	60.00
Direct labor (20 hrs. @ $4.50 per hr.)		90.00
Factory variable overhead (20 hrs. @ $2.90 per hr.)		58.00
Factory fixed overhead (20 hrs. @ $1.20 per hr.)		24.00

Standard cost	$	232.00

The $4.10 ($2.90 + $1.20) total overhead rate per direct labor hour is based on an expected operating level equal to 65% of the factory’s capacity of 63,000 units per month. The following monthly flexible budget information is also available.

	Operating Levels (% of capacity)

		60%		65%		70%
Budgeted output (units)		37,800		40,950		44,100
Budgeted labor (standard hours)		756,000		819,000		882,000
Budgeted overhead (dollars)
Variable overhead	$	2,192,400	$	2,375,100	$	2,557,800
Fixed overhead		982,800		982,800		982,800

Total overhead	$	3,175,200	$	3,357,900	$	3,540,600

During the current month, the company operated at 60% of capacity, employees worked 726,000 hours, and the following actual overhead costs were incurred.


Variable overhead costs	$	2,120,000
Fixed overhead costs		1,065,000

Total overhead costs	$	3,185,000

Exercise 23-9A Materials variances recorded and closed LO P4

Hart Company made 6,200 bookshelves using 88,200 board feet of wood costing $643,860. The company’s direct materials standards for one bookshelf are 16 board feet of wood at $7.20 per board foot. Hart Company records standard costs in its accounts and its material variances in separate accounts when it assigns materials costs to the Goods in Process Inventory account.

Exercise 23-10 Computation of total overhead rate and total overhead variance LO P3

World Company expects to operate at 80% of its productive capacity of 55,000 units per month. At this planned level, the company expects to use 23,100 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate based on direct labor hours. At the 80% capacity level, the total budgeted cost includes $60,060 fixed overhead cost and $267,960 variable overhead cost. In the current month, the company incurred $342,000 actual overhead and 20,100 actual labor hours while producing 41,000 units. (Round “OH costs per DL hour” to 2 decimal places.)

Exercise 23-11 Computation of volume and controllable overhead variances LO P3

World Company expects to operate at 80% of its productive capacity of 63,750 units per month. At this planned level, the company expects to use 35,700 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate based on direct labor hours. At the 80% capacity level, the total budgeted cost includes $64,260 fixed overhead cost and $439,110 variable overhead cost. In the current month, the company incurred $500,000 actual overhead and 32,700 actual labor hours while producing 48,000 units.

Exercise 23-12 Computing and interpreting sales variances LO A1

Comp Wiz sells computers. During May 2013, it sold 500 computers at a $800 average price each. The May 2013 fixed budget included sales of 550 computers at an average price of $760 each.

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