ACCT 130 – Principles of Management Accounting

Fall 2023, S5 & S6

Practice Sheet 8 – Chapter 9 Flexible Budgeting

MCQs:
1. The master budget of Windy Co. shows that the planned activity level for next year is
expected to be 50,000 machine hours. At this level of activity, the following manufacturing
overhead costs are expected:
Indirect labor $720,000
Machine supplies 180,000
Indirect materials 210,000
Depreciation on factory building 150,000
Total manufacturing overhead $1,260,000

A flexible budget for a level of activity of 60,000 machine hours would show total
manufacturing overhead costs of
A. $1,482,000.
B. $1,260,000.
C. $1,512,000.
D. $1,362,000.

2. A department has budgeted monthly manufacturing overhead cost of $540,000 plus $3 per
direct labor hour. If a flexible budget report reflects $1,044,000 for total budgeted manufacturing
cost for the month, the actual level of activity achieved during the month was
A. 528,000 direct labor hours.
B. 168,000 direct labor hours.
C. 348,000 direct labor hours.
D. Cannot be determined from the information provided.

3. Sesareo Tile Installation Corporation measures its activity in terms of square feet of tile
installed. Last month, the budgeted level of activity was 1,130 square feet and the actual level of
activity was 1,180 square feet. The company's owner budgets for supply costs, a variable
overhead cost, at $2.60 per square foot. The actual supply cost last month was $2,130. In the
company's flexible budget performance report for last month, what would have been the variance
for supply costs?
A) $808 F
B) $938 F
C) $90 U
D) $130 U

4. Which of the following comparisons best isolates the impact of a change in activity on
performance?
A. static planning budget and flexible budget
B. static planning budget and actual results
C. flexible budget and actual results
D. master budget and static planning budget

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5. Flight Café prepares inflight meals for airlines and uses the following cost formula for its
wages and salaries: $1,540 per month plus $497 per meal. It planned activity for March of 112
meals, but the actual level of activity was 107 meals. If the actual wages and salaries for the
month amounted to $56,850, what is the activity variance for wages and salaries in March?
A. $2,485 U
B. $354 U
C. $2,485 F
D. $354 F

6. The flexible budget cost formula for ABC Limited for indirect materials (a variable cost) is
$0.90 per unit of output. If the company's performance report for last month shows a $500
unfavorable spending variance for indirect materials and if 8,000 units of output were produced
last month, then the actual costs incurred for indirect materials for the month must have been:
A. $7,650
B. $7,700
C. $7,200
D. $6,700

7. Chugtais Lab uses patient-visits to measure activity levels. During October, the Lab budgeted
1,060 patient-visits whereas actual visits were 1,050. The cost formula for administrative
expenses is $3.00 per patient-visit plus $17,000 per month. The actual administrative expense
was $19,300. In the clinic's flexible budget performance report for last month, the spending
variance for administrative expenses was:
A. $850 F
B. $220 U
C. $30 F
D. $880 F

8. ABC Corporation's flexible budget cost formula for supplies, a variable overhead cost, is
$2.17 per unit of output. The company's flexible budget performance report for last month
showed a $4,531 unfavorable variance for supplies. During that month, 19,700 units were
produced. Budgeted activity for the month had been 19,400 units. The actual costs incurred for
indirect materials must have been closest to:
A) $2.17
B) $2.63
C) $2.67
D) $2.40

9. ABC Corporation's flexible budget performance report for last month shows that actual
indirect materials cost, a variable overhead cost, was $28,420 and that the variance for indirect
materials cost was $3,828 unfavorable. During that month, the company worked 11,600
machine-hours. Budgeted activity for the month had been 11,300 machine-hours. The cost
formula per machine-hour for indirect materials cost must have been closest to:
A) $2.85
B) $2.18
C) $2.78

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D) $2.12

Short Computational:
1. Wexell Framing's cost formula for its supplies cost is $1,230 per month plus $10 per frame.
For the month of October, the company planned for activity of 592 frames, but the actual level of
activity was 597 frames. The actual supplies cost for the month was $7,050.
Required:
a. What is the activity variance for supplies cost in October? Indicate whether this is favorable or
unfavorable.

Solution:
a. Flexed Supplies Costs – Budgeted Supplies Costs = Activity Variance
($1,230 + $10 * 597) – ($1,230 + $10 * 592) = $50 U
OR
Activity Variance = Difference in activity * variable cost
= (597-592) * $10 = $50 U

Because the flexible budget is greater than the planning budget, the variance is unfavorable (U).

Long form Problems:

Question 1:
Tabeling Corporation manufactures and sells a single product. The company uses units as the
measure of activity in its budgets and performance reports. During August, the company
budgeted for 6,500 units, but its actual level of activity was 6,540 units. The company has
provided the following data concerning the formulas used in its budgeting and its actual results
for August.

Data used in budgeting:

Variable
Fixed element element per
per month unit
Revenue $ 34.50

Direct labor $ 4.40

Direct materials $ 12.70
Manufacturing overhead $ 48,100 $ 1.40
Selling and admin expenses $ 29,400 $ 0.80
Total expenses $ 77,500 $ 19.30

Actual results for August:

Revenue $217,260
Direct labor $29,966
Direct materials $85,118
Manufacturing overhead $58,146

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Selling and admin expenses $33,092

Required:
a. What is the activity variance for net operating income in August? Indicate whether the
variance is favorable or unfavorable.
b. What is the overall revenue and spending variance for August? Indicate whether the variance
is favorable or unfavorable.

Solution:
a. Contribution margin per unit = $SP - $VC
= $34.50 - $19.30 = $15.2 per unit

Activity variance = CM per unit * (Actual activity – budgeted activity)

= $15.2 * (6,540 – 6,500) = $608 F

As the flexible budget net operating income is greater than the planning budget, the variance is
favorable (F).
* For revenue and profit when Flex > Budget, it results in a Favorable variance
**For any cost when Flex > Budget, it results in an Unfavorable variance

b.

Revenue $ 217,260
Direct labor $ 29,966
Direct materials $ 85,118
Manufacturing overhead $ 58,146
Selling and admin expenses $ 33,092 $ 206,322
Net operating income $ 10,938

Flexible Budget NOI = $15.2 * (6,540) - $77,500 = $21,908.

Variance = $10,938 - $21,908 = $10,970 U. As the actual net operating income is less than the
flexible budget, the overall revenue and spending variance is unfavorable (U). This means that
management did not control costs well.

2. Kestner Clinic uses patient-visits as its measure of activity. The budgeted patient-visits for
October was 3,000. Actual activity level was 2,900 patient-visits. The following data relates to
the formulas used in preparing the budget and the actual results for the month:

Data used in budgeting: Actual Results

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Prepare the clinic's flexible budget performance report for September. Label each variance as
favorable (F) or unfavorable (U).

Solution: