Homework

P372, 17
373, 25
374. 28

17. How would a coffee shop use labor and materials variance information?
A coffee shop would use labor variance information to determine if the scheduling
of wait persons is matching the customer demand.
In the same way a coffee shop would use material variance information to
determine if the requirement of material is matching with the customer demanded
items.
25. Organic Products estimates the following selling expenses next period:
Salaries (fixed)
Commissions (0.5%of sales revenue)
Travel (0.03% of sales revenue)
Advertising (fixed)
Sales Office Costs ($3,750 plus $0.05 per unit
sold)
Shipping Costs ($0.10 per unit sold)
Total Selling Expenses

$ 30,000
17,875
10,725
60,000
7,000
6,500
132,100

A. Derive the cost equation (y = a + bx) for selling expenses. (Hint: y = a + bx

+ cy.)
B. Assume that Organic actually sells 50,000 units during the period at an
average price of $6 per unit. The company had budgeted sales for the period
to be: volume, 65,000 units; price, $5.50. Calculate the sale price and volume
variance.
C. The actual selling expenses incurred during the period were $80,000 fixed
and $30,000 variable. Prepare a profit variance analysis for sales revenue
and selling expenses.
Sales price variance formula:
Sale price variance = Actual quantity units sold (Actual selling prices
Planned selling price)
Sales price variance = 50,000 (6.00 5.50)
= $25,000
Sales variance formula:

Sales volume variance

= (Actual units sold Budgeted units sold) x Budgeted price per unit
= (50,000 65,000) x 5.50
= 82,500
28. The Cakebread Candy Company presents the following data for October:
Materials
Labor

Standards per Batch

1 pound at $2.50 per
pound
1.5 Hours at $3.00 per
Hour

Batches Produced

Actual Total
49,000 Pounds
70,000 Hours
48,000 Batches

During the month, the firm purchased 49,000 pounds of materials for $127,500.
Wages earned were $214,000. Compute the labor and material variances.

Labor rate variance:

Actual rate = 214,000 / 70,000 hours = $3.05
Labor rate variance = AH (AR-SR)
Labor rate variance = 70,000 (3.05-3.00) = $3,500

Material variance:
Material price variance = AQ (AP-SP)
Actual Price = 127,500 / 49,000 pounds = $2.60 per pound
SP = $2.50 per pound
Actual Quantity = 49,000 pounds
Material price variance = 49,000 (2.60-2.50)
Material price variance = 49,000 (0.10) = $4,900