Class #20 Solutions

Exercise 8-2
Budgeted unit sales .................
Add desired units of ending
finished goods inventory* ......
Total needs .............................
Less units of beginning finished
goods inventory ....................
Required production in units.....

April

May

June

Quarter

50,000

75,000

90,000 215,000

7,500
57,500

9,000
84,000

8,000
8,000
98,000 223,000

5,000
52,500

7,500
76,500

9,000
5,000
89,000 218,000

*10% of the following months sales in units.

Exercise 8-3

Required production in units of finished

goods ......................................................
Units of raw materials needed per unit of
finished goods .........................................
Units of raw materials needed to meet
production ...............................................
Add desired units of ending raw materials
inventory .................................................
Total units of raw materials needed .............
Less units of beginning raw materials
inventory .................................................
Units of raw materials to be purchased ........
Unit cost of raw materials............................
Cost of raw materials to purchased ..............

First

QuarterYear 2
Second
Third
Fourth

Year

60,000

90,000

150,000

100,000

400,000

180,000

270,000

450,000

300,000 1,200,000

54,000
234,000

90,000
360,000

60,000
510,000

42,000
42,000
342,000 1,242,000

36,000
54,000
90,000
60,000
36,000
198,000 306,000 420,000 282,000 1,206,000
$1.50 $1.50 $1.50 $1.50
$1.50
$297,000 $459,000 $630,000 $423,000 $1,809,000

Class #21 Solutions

Exercise 8-10
1. Production budget:
Budgeted unit sales ...............
Add desired units of ending
finished goods inventory .....
Total needs ...........................
Less units of beginning
finished goods inventory ....
Required production in units ..

July

35,000

August

Sept

October

40,000

50,000

30,000

11,000
46,000

13,000
53,000

9,000
59,000

7,000
37,000

10,000
36,000

11,000
42,000

13,000
46,000

9,000
28,000

2. During July and August the company is building inventories in

anticipation of peak sales in September. Therefore, production exceeds
sales during these months. In September and October inventories are
being reduced in anticipation of a forthcoming decrease in sales.
Therefore, production is less than sales during these months.

Exercise 8-10 (continued)

3. Direct materials budget:
Required production in units of finished goods .......
Units of raw materials needed per unit of finished
goods ...............................................................
Units of raw materials needed to meet production ..
Add desired units of ending raw materials
inventory...........................................................
Total units of raw materials needed .......................
Less units of beginning raw materials inventory .....
Units of raw materials to be purchased ..................

July

36,000

August

42,000

Sept

46,000

Third
Quarter

124,000

3 cc
108,000

3 cc
126,000

3 cc
138,000

3 cc
372,000

63,000
171,000
54,000
117,000

69,000
195,000
63,000
132,000

42,000 * 42,000
180,000
414,000
69,000
54,000
111,000
360,000

* 28,000 units (October production) 3 cc per unit = 84,000 cc;

84,000 cc 1/2 = 42,000 cc.
As shown in part (1), production is greatest in September; however, as shown in the raw material
purchases budget, purchases of materials are greatest a month earlierin August. The reason for the
large purchases of materials in August is that the materials must be on hand to support the heavy
production scheduled for September.

Class #23 Solutions

Problem 8-27
1. Schedule of expected cash collections:
Cash sales....................
Credit sales1 .................
Total collections ............

April

May

$36,000 * $43,200
20,000 * 24,000
$56,000 * $67,200

June

Quarter

$54,000
28,800
$82,800

$133,200
72,800
$206,000

June

Quarter

40% of the preceding months sales.

* Given.
1

2. Merchandise purchases budget:

April

May

Budgeted cost of goods

sold1 ............................ $45,000 * $ 54,000 * $67,500 $166,500
Add desired ending
merchandise
inventory2 .................... 43,200 * 54,000
28,800 * 28,800
Total needs ..................... 88,200 * 108,000
96,300
195,300
Less beginning
merchandise inventory .. 36,000 * 43,200
54,000
36,000
Required purchases ......... $52,200 * $ 64,800
$42,300 $159,300
1

For April sales: $60,000 sales 75% cost ratio = $45,000.

At April 30: $54,000 80% = $43,200.

At June 30: July sales $48,000 75% cost ratio 80% = $28,800.

* Given.
Schedule of expected cash disbursementsmerchandise purchases

April

May

June

March purchases ............. $21,750 *

April purchases ............... 26,100 * $26,100 *
May purchases ................
32,400 $32,400
June purchases ...............
21,150
Total disbursements ........ $47,850 * $58,500 $53,550
* Given.

Quarter

$ 21,750 *
52,200 *
64,800
21,150
$159,900

Problem 8-27 (continued)

3. Cash budget:

April

Beginning cash balance . $ 8,000 *

Add collections from
customers .................. 56,000 *
Total cash available ....... 64,000 *
Less cash
disbursements:
For inventory .............. 47,850 *
For expenses .............. 13,300 *
For equipment ............
1,500 *
Total cash
disbursements ............ 62,650 *
Excess (deficiency) of
cash available over
disbursements ............
1,350 *
Financing:
Borrowings .................
3,000
Repayments ...............
0
Interest ($3,000
1% 3 + $7,000
1% 2) ..................
0
Total financing ..............
3,000
Ending cash balance ...... $ 4,350
* Given.

May

June

Quarter

67,200
71,550

82,800
87,390

206,000
214,000

58,500
15,460
0

53,550
18,700
0

159,900
47,460
1,500

73,960

72,250

208,860

(2,410)

15,140

5,140

$ 4,350

$ 4,590 $ 8,000

7,000
0

0
10,000
(10,000) (10,000)

0
7,000
$ 4,590

(230)
(230)
(10,230)
(230)
$ 4,910 $ 4,910

Problem 8-27 (continued)

4.

Shilow Company
Income Statement
For the Quarter Ended June 30
Sales ($60,000 + $72,000 + $90,000) .......
Cost of goods sold:
Beginning inventory (Given) ...................
Add purchases (Part 2) ...........................
Goods available for sale..........................
Ending inventory (Part 2) .......................
Gross margin............................................
Selling and administrative expenses:
Commissions (12% of sales) ...................
Rent ($2,500 3) ..................................
Depreciation ($900 3) .........................
Other expenses (6% of sales) .................
Net operating income ...............................
Interest expense (Part 4) ..........................
Net income ..............................................

$222,000
$ 36,000
159,300
195,300
28,800
26,640
7,500
2,700
13,320

166,500 *
55,500

50,160
5,340
230
$ 5,110

* A simpler computation would be: $222,000 75% = $166,500.

Problem 8-27 (continued)

5.

Shilow Company
Balance Sheet
June 30

Assets

Current assets:
Cash (Part 4) ............................................................... $ 4,910
Accounts receivable ($90,000 40%)...........................
36,000
Inventory (Part 2) ........................................................
28,800
Total current assets ........................................................
69,710
Building and equipmentnet
($120,000 + $1,500 $2,700)...................................... 118,800
Total assets .................................................................... $188,510

Liabilities and Stockholders Equity

Accounts payable (Part 2: $42,300 50%) ..
Stockholders equity:
Common stock (Given) ............................. $150,000
Retained earnings* ..................................
17,360
Total liabilities and stockholders equity ........
* Beginning retained earnings ....................
Add net income.......................................
Ending retained earnings .........................

$12,250
5,110
$17,360

$ 21,150
167,360
$188,510

Class #24 Solutions

Exercise 9-4
1.

Vulcan Flyovers
Flexible Budget Performance Report
For the Month Ended July 31

Flights (q) ......................................

Revenue ($320.00q).......................
Expenses:
Wages and salaries ($4,000 +
$82.00q) ..................................
Fuel ($23.00q) ............................
Airport fees ($650 + $38.00q) ......
Aircraft depreciation ($7.00q) .......
Office expenses ($190 + $2.00q) .
Total expense ................................
Net operating income .....................

Actual
Results

Revenue
and
Spending
Variances

Flexible
Budget

$13,650

$1,710

$15,360

$640

$16,000

8,430
1,260
2,350
336
460
12,836
$ 814

494
156
124
0
174
700
$2,410

U
U
F

7,936
1,104
2,474
336
286
12,136
$ 3,224

164
46
76
14
4
304
$336

F
F
F
F
F
F
U

8,100
1,150
2,550
350
290
12,440
$ 3,560

48

U
U
U

48

Activity
Variances

Planning
Budget

50

2. The overall $336 unfavorable activity variance is due to activity falling below what had been planned for the
month. The $1,710 unfavorable revenue variance is very large relative to the companys net operating income
and should be investigated. Was this due to discounts given or perhaps a lower average number of passengers
per flight than usual? The $494 unfavorable spending variance for wages and salaries is also large and should be
investigated. The other spending variances are relatively small, but are worth some management attention
particularly if they recur next month.

Class #25 Solutions

Exercise 9-16
Via Gelato
Revenue and Spending Variances
For the Month Ended June 30

Liters (q) .................................

Revenue ($12.00q) ...................
Expenses:
Raw materials ($4.65q) ..........
Wages ($5,600 + $1.40q) ......
Utilities ($1,630 + $0.20q) .....
Rent ($2,600) ........................
Insurance ($1,350) ................
Miscellaneous ($650 +
$0.35q) ..............................
Total expense ..........................
Net operating income ...............

Actual
Results

Flexible
Budget

Revenue
and
Spending
Variances

$71,540

$74,400

$2,860

29,230
13,860
3,270
2,600
1,350

28,830
14,280
2,870
2,600
1,350

400
420
400
0
0

U
F
U

2,590
52,900
$18,640

2,820
52,750
$21,650

230
150
$3,010

F
U
U

6,200

6,200

Class #26 Solutions

Exercise 9-15
1, 2, & 3.

Packaging Solutions Corporation

Production Department Flexible Budget Performance Report
For the Month Ended March 31

Labor-hours (q) ...............................

Direct labor ($15.80q) .....................
Indirect labor ($8,200 + $1.60q) ......
Utilities ($6,400 + $0.80q) ...............
Supplies ($1,100 + $0.40q)..............
Equipment depreciation
($23,000 + $3.70q) ......................
Factory rent ($8,400).......................
Property taxes ($2,100) ...................
Factory administration
($11,700 + $1.90q) ......................
Total expense .................................

Actual
Results

Spending
Variances

Flexible
Budget

Activity
Variances

Planning
Budget

$134,730
19,860
14,570
4,980

$2,010
1,780
1,450
520

U
F
U
U

$132,720
21,640
13,120
4,460

$6,320
640
320
160

U
U
U
U

$126,400
21,000
12,800
4,300

54,080
8,700
2,100

0
300
0

54,080
8,400
2,100

1,480
0
0

52,600
8,400
2,100

26,470
$265,490

1,190
$1,310

F
U

27,660
$264,180

760
$9,680

U
U

26,900
$254,500

8,400

8,400

8,000

Exercise 9-15 (continued)

4. The overall unfavorable activity variance of $9,680 occurred because the
actual level of activity exceeded the budgeted level of activity. The
production manager certainly should not be held responsible for this
unfavorable variance if this increased activity was due to more orders or
more sales. On the other hand, the overall unfavorable spending
variance of $1,310 may be of concern to management. Why did the
unfavorableand favorablevariances occur? Even the relatively small
unfavorable spending variance for supplies of $520 should probably be
investigated because, as a percentage of what the cost should have
been ($520/$4,460 = 11.7%), this variance is fairly large.

Class #27 Solutions

Katies Caps Flexible Budget Performance Report
For the Month Ended November 30

Finished Caps (q1) ..........................

Direct Labor Hours (q2) ..................
Unfinished Caps (q3) ......................
Crystals (q4) ..................................
Revenue ($45*q1) ..........................
Direct Materials- Unfinished Hats
($7.50*q1 OR $18*q2) ..................
Direct Materials Crystals
($4.50*q1 OR $0.03*q4) ...............
Direct Labor
($3.60*q1 OR $18*q2) .................
Variable Manufacturing Overhead
($2.4*q1 OR $12*q2) ...................
Total Variable Standard Cost ............
Fixed Costs ($2,000) ......................
Net Income.....................................
1
2
3
4

480
340
150
150

Actual
Results

480
80
490
96,000

Spending
Variances

Flexible
Budget

480
96 1
480
72,0003

Activity
Variances

Planning
Budget

340
68 2
480
51,0004

$20,640

$960

$21,600

$6,300

$15,300

$4,410

$810

$3,600

$1,050

$2,550

$2,880

$720

$2,160

$630

$1,530

$1,040

$688

$1,728

$504

$1,224

$1,152
$9,482
$2,500
$8,658

$0
$842
$500
$2,302

U
U
U

$1,152
$8,640
$2,000
$10,960

$336
$2,520
$0
$3,780

U
U

$816
$6,120
$2,000
$7,180

finished hats x 0.2 standard DLH per hat = 96 DLHs.

finished hats x 0.2 standard DLH per hat = 68 DLHs.
crystals per finished hat x 480 finished hats = 72,000 crystals.
crystals per finished hat x 340 hats = 51,000 crystals.

Direct Materials Unfinished Caps

Actual Quantity of
Input, at Actual Price
(AQ AP)

Actual Quantity
of Input, at
Standard Price
(AQ SP)

Price Variance,

Standard Quantity
Allowed for Output,
at Standard Price
(SQ SP)

Quantity Variance,

Spending Variance,

Direct Materials Crystals

Actual Quantity of
Input, at Actual Price
(AQ AP)

Actual Quantity
of Input, at
Standard Price
(AQ SP)

Price Variance,

Standard Quantity
Allowed for Output,
at Standard Price
(SQ SP)

Quantity Variance,

Spending Variance,

Direct Labor
Actual Hours of
Input, at Actual Rate
(AH AR)

Actual Hours
of Input, at
Standard Rate
(AH SR)

Rate Variance,

Standard Hours
Allowed for Output,
at Standard Rate
(SH SR)

Efficiency Variance,

Spending Variance,

Variable Manufacturing Overhead

Actual Hours of
Input, at Actual Rate
(AH AR)

Actual Hours
of Input, at
Standard Rate
(AH SR)

Rate Variance,

Standard Hours
Allowed for Output,
at Standard Rate
(SH SR)

Efficiency Variance,

Spending Variance,

Class #27 & Class #28 Solutions

Katies Caps Flexible Budget Performance Report
For the Month Ended November 30

Actual
Results

1
2
3
4

Spending
Variances

Flexible
Budget

Activity
Variances

Finished Caps (q1)...........................

Direct Labor Hours (q2) ..................
Unfinished Caps (q3) ......................
Crystals (q4) ..................................

480
80
490
96,000

Revenue ($45*q1) ...........................

Direct Materials- Unfinished Hats
($7.50*q1 OR $18*q2) ..................
Direct Materials Crystals
($4.50*q1 OR $0.03*q4) ...............
Direct Labor
($3.60*q1 OR $18*q2) ..................
Variable Manufacturing Overhead
($2.4*q1 OR $12*q2) ...................
Total Variable Standard Cost ............
Fixed Costs ($2,000) .......................
Net Income .....................................

$20,640

$960

$21,600

$6,300

$15,300

$4,410

$810

$3,600

$1,050

$2,550

$2,880

$720

$2,160

$630

$1,530

$1,040

$688

$1,728

$504

$1,224

$1,152
$9,482
$2,500
$8,658

$0
$842
$500
$2,302

U
U
U

$1,152
$8,640
$2,000
$10,960

$336
$2,520
$0
$3,780

U
U

$816
$6,120
$2,000
$7,180

480
340
150
150

finished hats x 0.2 standard DLH per hat = 96 DLHs.

finished hats x 0.2 standard DLH per hat = 68 DLHs.
crystals per finished hat x 480 finished hats = 72,000 crystals.
crystals per finished hat x 340 hats = 51,000 crystals.

480
961
480
72,0003

Planning
Budget
340
682
480
51,0004

Direct Materials Unfinished Caps

Actual Quantity of
Input, at Actual Price
(AQ AP)
490 hats x $9 per
hat = $4,410

Actual Quantity
of Input, at
Standard Price
(AQ SP)
490 hats x $7.50 per
hat = $3,675

Standard Quantity
Allowed for Output,
at Standard Price
(SQ SP)
480 hats x $7.50 per
hat = $3,600

Price Variance,
Quantity Variance,
$735 U
$75 U
Spending Variance,
$810 U

Direct Materials Crystals

Actual Quantity of
Input, at Actual Price
(AQ AP)
96,000 crystals x
$0.03 per crystal =
$2,880

Actual Quantity
of Input, at
Standard Price
(AQ SP)
96,000 crystals x
$0.03 per crystal =
$2,880

Standard Quantity
Allowed for Output,
at Standard Price
(SQ SP)
72,000* crystals x
$0.03 per crystal =
$2,160

Price Variance,
Quantity Variance,
$0
$720 U
Spending Variance,
$720 U

*72,000 crystals = 480 finished caps x 150 crystals per cap

Direct Labor
Actual Hours of
Input, at Actual Rate
(AH AR)
80 DLHs x $13 per
hour = $1,104

Actual Hours
of Input, at
Standard Rate
(AH SR)
80 DLHs x $18 per
hour = $1,440

Standard Hours
Allowed for Output,
at Standard Rate
(SH SR)
96* DLHs x $18 per
hour = $1,728

Rate Variance,
Efficiency Variance,
$400 F
$288 F
Spending Variance,
$688 F

*96 DLHs = 480 finished hats x 0.2 DLHs per hat

Variable Manufacturing Overhead

Actual Hours of
Input, at Actual Rate
(AH AR)
80 DLHs x $14.40*
per hour = $1,152

Actual Hours
of Input, at
Standard Rate
(AH SR)
80 DLHs x $12 per
hour = $960

Standard Hours
Allowed for Output,
at Standard Rate
(SH SR)
96 DLHs x $12 per
hour = $1,152

Rate Variance,
Efficiency Variance,
$192U
$192 F
Spending Variance,
$0

*$1,152/80 hours = $14.40