Student Worksheet (A325 *Lloyd) Chapter 7 *Problem 7-17, 35*Flexible Budgets, Direct-Cost Variances, Mngmnt Control Page 1

7-17 Flexible budget. Connor Company’s budgeted prices for direct materials, direct manufacturing labor, and direct
marketing (distribution) labor per attaché case are $40, $8, and $12, respectively. The president is pleased with the following
performance report:

Actual Cost Static Budget Variance

Direct materials $364,000 $400,000 $36,000 F
Direct manufacturing labor 78,000 80,000 2,000 F
Direct marketing [distribution] labor 110,000 120,000 10,000 F

Actual output was 8,800 attaché cases. Assume all three direct-cost items shown are variable costs.

Is the president’s pleasure justified? Prepare a revised performance report that uses a flexible budget and a static budget.

7-17 Solutions

1. Calculate Budgeted Output Level

Step 1
$Direct materials$ in static budget ÷ $Budgeted direct materials $cost [per attaché case] = #Budgeted output level
↓ ↓ ↓ ↓ ↓
$400,000 ÷ $40 = 10,000 units

2. . Calculate Variance Analyses (comparing Actual, Flexible and Static Budgets) Step 2.
Variance Analysis for Connor Company
Flexible- F Sales- F
Actual Budget / Flexible Volume / Static
G
Results Variances U Budget Variances U Budget
(1) (2) = (1) – (3) (3) (4) = (3) – (5) (5)
U
Output units 8,800G 0 N/A 8,800 1,200 10,000
F
Direct materials $364,000 12,000 U $40x8800=352,000 352,000-400,000= - 48,000
$400,000

U F
Direct manufacturing labor 78,000 7,600 $8x8800=$70,400 70,400-80,000= - 9,600
80,000
Direct marketing
F
[distribution] labor 110,000 4,400 U $12x8800=$105,600 105,600-120,000=- 14,400
120,000

Total direct costs 552,000 24,000 U $528,000 -72,000 F 600,000

↑ ↑ ↑
$24,000 U -72,000 F

Flexible-Budget Variance Sales-Volume Variance

↑ $48,000 ↑

Static-Budget Variance
Student Worksheet (A325 *Lloyd) Chapter 7 *Problem 7-17, 35*Flexible Budgets, Direct-Cost Variances, Mngmnt Control Page 2

3. .
(a) Calculate each Direct Cost category’s Unit Variable cost (for both Actual and Budgeted); then
(b) Compare each Direct Cost category per Unit for Actual versus Budgeted:
Step 3

Difference

Actual Budgeted
Number of Units
8,800 1200 10,000
Direct materials per unit
$41.36 4 1.364 $40
Direct manufacturing labor per unit
$8.864 0.864 $8
Direct marketing [distribution] labor per unit
$12.5 0.5 $12
Text

Textbook pages: 231, 232 (Level 2 Flexible budget variances, Sales volume variances)

BASIC FORMULAS for →7-35 Direct manufacturing labor and direct materials variances, missing data.

I. Price Variance Calculation =

(Actual Price – Budgeted Price) Actual Input Quantity Used

Reorganized Formula for Price Variance calculations

II. Price Variance Calculation = III. Price Variance Calculation =

(Actual Price per Unit of Input  Actual Input Quantity) Actual Total for categoryM,L,O Cost Incurred
– (Budgeted Price per Unit of Input  Actual Input Quantity) – (Budgeted Price  Actual Input Quantity)

I. Efficiency Variance Calculation =

(Actual Input Quantity Used – Budgeted Input Quantity Allowed for Actual Output) Budgeted Price of Input

Reorganized Formula for Efficiency Variance calculation

II. Efficiency Variance Calculation =

(Actual Input Quantity Used  Budgeted Price per Unit of Input)

– (Budgeted Input Quantity Allowed for Actual Output  Budgeted Price per Unit of Input)
Student Worksheet (A325 *Lloyd) Chapter 7 *Problem 7-17, 35*Flexible Budgets, Direct-Cost Variances, Mngmnt Control Page 3

7-35 Direct manufacturing labor and direct materials variances, missing data. (CMA, heavily adapted) Morro
Bay Surfboards manufactures fiberglass surfboards. The standard cost of direct materials and direct manufacturing labor is
$225 per board. This includes 30 pounds of direct materials at the budgeted price of $3 per pound, and 9 hours of direct
manufacturing labor, at the budgeted rate of $15 per hour. Following are additional data for the month of July.

Units completed [*budgeted] 5,500 Units

Direct material purchases 190,000 Pounds
Cost of direct material purchases $579,500
Actual direct manufacturing labor hours 49,000 Hours
Actual direct labor cost $739,900
Direct materials efficiency variance $ 1,500 F
*Clarification: This item is the budgeted number of units expected to be completed

There were no beginning inventories.

1. Compute direct manufacturing labor variances for July.

2. Compute the actual pounds of direct materials used in production in July.
3. Calculate the actual price per pound of direct materials purchased.
4. Calculate the direct materials price variance.
739,900/49,000=15.1
1. Direct manufacturing labor variances for July.
Price Variance Calculation = Efficiency Variance Calculation =
(Actual Price  Actual Input Quantity)↓ (Actual Input Quantity Used↓  Budgeted Price per
per Unit of Input↓ Unit of Input)↓
$739,900 $735,000
( 49,000 )↓
( $15.10  49,000 )↓
 $15

– (Budgeted Price  Actual Input Quantity) ↓ – (Budgeted Input Quantity   Budgeted Price
per Unit of Input↓ Allowed for Actual Output ↓ per Unit of Input)↓
– ( 9hrs x 5500 = 49500 hrs $15 )↓
–( 15  49,000 )↓

–
– 739,900-735,000 735,000- 742,500
= 4,900 Price Variance = $7,500 Efficiency Variance

2. Compute the Actual Pounds of direct materials Used in Production in July. Step 1.
Recall that: # part of Efficiency Variance =→ Actual Input Quantity Used – Budgeted Input Quantity
Allowed for Actual Output

Therefore: Actual Input Quantity Used =→ Budgeted Input Quantity Allowed for Actual Output –
# part of Efficiency Variance↓
G G c
So: Actual Input Quantity Used [calculation] =→ (30 pounds * 5,500 ) – # part of Efficiency Variance ↓
c
=→ 165,000 – # part of Efficiency Variance
Student Worksheet (A325 *Lloyd) Chapter 7 *Problem 7-17, 35*Flexible Budgets, Direct-Cost Variances, Mngmnt Control Page 4

c= calculation for
# part of Efficiency Variance Step 2.

Recall that: → $$ ÷ $$ = ## =→ $Efficiency variance$ ÷ $Per pound budgeted Price$

= #Pounds#↓

$1,500 ÷ $3 = 500 Pounds

Return to Step 1 for Computation of the Actual Pounds of direct materials Used in production in July. Step 3.
G*G c
Insert calculations from Step 1 & Step 2 =→ 165,000 – 500 Pounds ↓

Therefore: Actual Input Quantity Used =→ 164,500 pounds

3. Calculate the Actual Price Per pound of direct materials Purchased.

$Cost of direct material purchases$

Recall that: → $$ ÷ ## = $$ =→ ÷ #Direct material purchases#
= Actual Price paid Per pound ↓
579,500/190,000=$3.05

4. Calculate the Direct Materials Price Variance.

Direct Materials Price Variance Calculation =
(Actual Price Per Unit  Actual Input Quantity) →
($ 
#)
$3.05 190,000 3.05 190,000
G → $
or Total Actual Costs Incurred 579,500

– (Budgeted Price per Unit  Actual Input Quantity) →

($ 
#)
$3 190,000 $3 190,000
– $ 570,000
= Price Variance → $ 9,500