Problem from HDR

The president of the company, Gregory Peters, has come to you for help. Use the following data to
prepare a flexible budget for possible sales/production levels of 10,000, 11,000, and 12,000 units.
Show the contribution margin at each activity level.

$
Sales price 24 per unit
Variable costs:
Manufacturing 12 per unit
Administrative 3 per unit
Selling 1 per unit
Fixed costs:
Manufacturing 60,000
Administrative 20,000

Flexible Budget for Various Levels of Sales/Production Activity

Units 10,000 11,000 12,000

Sales 240,000 264,000 288,000

Variable costs:
Manufacturing 120,000 132,000 144,000
Administrative 30,000 33,000 36,000
Selling 10,000 11,000 12,000

Total variable costs 160,000 176,000 192,000

Contribution margin 80,000 88,000 96,000

Fixed costs:
Manufacturing 60,000 60,000 60,000
Administrative 20,000 20,000 20,000
Total fixed costs 80,000 80,000 80,000

Operating income/(loss) 0 8,000 16,000

Tyson’s Hardware uses a flexible budget to develop planning information for its
warehouse operations. For 2013, the company anticipated that it would have 96,000
sales units for 664 customer shipments. Average storage bin usage for various
inventories was estimated to be 200 per day. The costs and cost drivers were
determined to be as follows:
Budget Actual
Sales (units) 96,000 90,000
Customer shipments 664 600
Average storage bin
usage 200 225 per day

Item Fixed ($) Variable ($) Cost driver

Product handling 10,000 1.25 per 100 units
Storage 3.00 per storage bin
Utilities 1,000 1.50 per 100 units
Shipping clerks 1,000 1.00 per shipment
Supplies 0.50 per shipment

During the year, the warehouse processed 90,000 units for 600 customer shipments.
The workers used 225 storage bins on average each day to sort, store, and process goods
for shipment. The actual costs for 2013 were:

Item Actual costs

Product handling 10,900
Storage 465
Utilities 2,020
Shipping clerks 1,400
Supplies 340

Static Budget
Actual ($) Variances ($)
($)
Product handling 10,900 11,200 300 F
Storage 465 600 135 F
Utilities 2,020 2,440 420 F
Shipping clerks 1,400 1,664 264 F
Supplies 340 332 -8 U
Total 15,125 16,236 1,111 F
 Flexibile Budget
Actual ($) Variances ($)
($)
Product handling 10,900 11,125 225 F
Storage 465 675 210 F
Utilities 2,020 2,350 330 F
Shipping clerks 1,400 1,600 200 F
Supplies 340 300 -40 U
Total 15,125 16,050 925 F
1. Western Run University offers a continuing education program in many cities throughout the
state. For the convenience of its faculty, as well as to save costs, the university operates a motor pool.
The supervisor prepared an annual operating budget, which was approved by the University
management. The annual budget was based on the following assumptions:
· 15 automobiles in the pool
· 25,000 kilometers per year per automobile
· 25 kilometers per gallon per automobile
· $1.20 per gallon of gas
· $0.015 per kilometer for oil, minor repairs, parts and supplies
· $300 per automobile in outside repairs
The supervisor is unhappy with the monthly report comparing budget and actual costs for April, claiming it presents p

University Motor Pool

Budget report for April
Annual One-Month
April actual Variance
budget budget
Gasoline 18,000 1,500 1,720 -220
Oil, minor repairs, parts and supplies 5,625 469 550 -81
Outside repairs 4,500 375 495 -120
Insurance 18,000 1,500 1,600 -100
Salaries and benefits 90,000 10,000 7,500 0
Depreciation 66,000 7,500 5,867 -367
202,125 23,700 17,732 -888
Total miles 375,000 41,667 35,000
Cost per mile 0.539 0.569 0.507
Number of automobiles 15 15 16

Required:
a. Employing flexible budgeting techniques, prepare a report that shows budgeted amounts, actual costs, and monthly

Solution

15 automobiles in the
25,000 kilometers per year
25 kilometers per gallon
$ 1.2 per gallon of
$ 0.015 per kilometer for
$ 300 per automobile in

University Motor Pool

Budget report for April
 Annual One-Month
April actual Variance
budget budget
Gasoline 18,000 1,500 1,720 -220
Oil, minor repairs, parts and supplies 5,625 469 550 -81
Outside repairs 4,500 375 495 -120
Insurance 18,000 1,500 1,600 -100
Salaries and benefits 90,000 7,500 7,500 0
Depreciation 66,000 5,500 5,867 -367
202,125 16,844 17,732 -888
Total miles 375,000 31,250 35,000
Cost per mile 0.539 0.539 0.507
Number of automobiles 15 15 16
pril, claiming it presents performance for April unfairly.

actual costs, and monthly variation for April.

pool
per automobile
per automobile
gas
oil, minor repairs, parts and supplies
outside repairs
 One-Month Flexible budget
Variance Variance
flexible budget Variance
U 1,600 -120 U
U 500 -50 U
U 400 -95 U
U 1,600 0
8,000 500 F
U 5,867 0
U 17,967 235 F
33,333
0.539
16
Problem 20.1: AHM (Originally meant for variance analysis; modified by me to be used for budgeting

Beta Company produces two products, A and B, each of which uses materials X and Y. The following unit standard

Material X
lbs. $
Product A 4 13
Product B 6 13

The budget for November 2018, is estimated at 4,200 units of A and 3,600 units of B at the selling prices of Rs.135 a

Required:
(a) Calculate material price and usage variances for the month
(b) Calculate the labor rate and efficiency variances for the month
(c) How would your answers to (a) and (b) change if you had been told that November-2018's planned production act
(d) How would your answers to (a) and (b) change if you had been told that November's sales were 4,000 units of A a

Static (M
Product A
Units Unit cost
Production and Sales 4200
Material X 4 13.00
Material Y 1 8.50
Labour 0.20 14.00
Total variable cost
Contribution
Total fixed cost
Profit

Actual
Production 4,200.00
Materials purchased
X 39,000.00 12.40
Y 11,000.00 8.70

Labour hours used 2,025.00 13.60

(e) Prepare a flexible budget and flexible budget variances assuming the following information:
Actual production of A 4,000 units
Actual production of B 4,000 units
Total fixed cost for producing A and B Rs.4,90,000
Material X used in 'Actual' producttion of A 16,500 units
Material X used in 'Actual' producttion B 22,500 units
Material Y used in 'Actual' producttion of A 3,500 units
Material Y used in 'Actual' producttion B 7,500 units
Actual labour used in Product A 845 hours
Actual labour used in Product B 1,180 hours

Flexible budget
Product A
Particulars No. of
Unit price units
Sales 135.00 4,000
Variable costs:
Material X 13.00 16,000
Material Y 8.50 4,000
Labour 14.00 800
Total variable cost 35.50
Contribution 99.50
Fixed cost
Operating profit

Actual
Product A
Particulars No. of
Unit price units
Sales 135.00 4,000
Material X 12.40 16,500
Material Y 8.70 3500
Labour 13.60 845
Total variable cost
Contribution
Fixed cost
Operating profit

Variances
Particulars Product A
Sales 0.00
Material X 3,400.00 F
Material Y 3,550.00 F
Labour -292.00 U
Total variable cost 6,658.00 F
odified by me to be used for budgeting

uses materials X and Y. The following unit standard costs apply:

Material Y Direct labour

lbs. $ Hrs. $ per hour
1 8.5 0.2 14
2 8.5 0.33 14

and 3,600 units of B at the selling prices of Rs.135 and Rs.180 respectively. Also, 39,000 pounds of X were purchased at $12.4

en told that November-2018's planned production activity was 4,000 units of A and 4,000 units of B?
en told that November's sales were 4,000 units of A and 3,500 units of B?

Static (Master) Budget

Product A Product B
Cost p.u. Total Units Unit cost Cost p.u.
135.00 567,000.00 3600 180.00
52.00 218,400.00 6 13.00 78.00
8.50 35,700.00 2 8.50 17.00
2.80 11,760.00 0.33 14.00 4.67
63.30 265,860.00 99.67
71.70 301,140.00 80.33

3,600.00

ming the following information:

Selling price of Product A Rs.135
Selling price of Product B Rs.180
Price per unit of Material X (Stan Rs.13.00
Price per unit of Material Y (Stan Rs.8.50
Price per unit of Material X (ActuRs.12.40
Price per unit of Material Y (ActuRs.8.70
Labour rate per hour (Standard) Rs.14.00
Labour rate per hour (Actual) Rs.13.60

Product A Product B
Total
Total Unit price No. of units Total performance
540,000.00 180.00 4,000 720,000.00 1,260,000.00

208,000.00 13.00 24,000 312,000.00

34,000.00 8.50 8,000 68,000.00
11,200.00 14.00 1,333 18,666.67
253,200.00 35.50 398,666.67
286,800.00 144.50 321,333.33 608,133.33
490,000.00
118,133.33

Product A Product B

Total Unit price No. of units Total

540,000.00 180.00 4,000 720,000.00
204,600.00 12.40 22,500 279,000.00
30,450.00 8.70 7500 65,250.00
11,492.00 13.60 1180 16,048.00
246,542.00 360,298.00
293,458.00 359,702.00 653,160.00
490,000.00
163,160.00

Product B
0.00
33,000.00 F
2,750.00 F
2,618.67 F
38,368.67 F 45,026.67
of X were purchased at $12.40 per pound and 11,000 pounds of Y were purchased at $8.70 per pound; all of these materials (but

B
Grand Total
Total
648,000.00 1,215,000.00
280,800.00 499,200.00
61,200.00 96,900.00
16,800.00 28,560.00
358,800.00 624,660.00
289,200.00 590,340.00
490,000.00
100,340.00
45,026.67
und; all of these materials (but no other materials) were used for the month's production. This production required 2,025 direct l
required 2,025 direct labour hours at $13.60 per hour. The company incurred a fixed cost of Rs.4,90,000 during this period.
during this period.