Tutorial 8 Sheet Solved MGMT 2

Tutorial 8 Sheet
Formulas
▪ Price/Rate Variance = Actual Quantity of Input x (Actual Price of Input - Budgeted Price of Input )
= AQ x (AP – BP)
▪ Efficiency/Quantity Variance = Budgeted Price of Input x (Actual Quantity of Input Used -
Budgeted Quantity of Input Allowed for Actual Output) = (AQ – BQ) x BP
▪ POSITIVE = UNFAVORABLE
▪ NEGATIVE = FAVORABLE
Question 1
Compute the price, efficiency and flexible budget variances for direct materials and direct labor from the
following data:
Solution
Question 2
Tuscany Statuary manufactures statues of famous historical figures. All statues are the same size. Each
unit requires the same amount of resources. The following information is from the static budget of 2011:
Standard quantities, standard prices and standard unit costs are given as follows:
During 2011, actual number of units produced and sold was 5,500. Actual cost of direct materials used
was 668,800 based on 70,400 pounds purchased at $9.5 per pound. Direct manufacturing labor hours
actually used were 18,500 at the rate of $51.5 per hour. As a result, actual direct manufacturing labor
costs were $952,750. Actual fixed costs were $1,180,000.
Required:
1) Calculate the sales volume variance and flexible budget variance for total costs.
2) Compute price and efficiency variances for direct material and direct manufacturing labor.
Solution
Flexible Sales
Actual Budget Flexible Volume Static
Results Variance Budget Variance Budget
Units Sold 5,500 0 - 5,500 500 U 6,000
DM 668,800 8,800 U 660,000 60,000 F 720,000
DL 952,750 9,750 F 962,500 87,500 F 1,050,000
FC 1,180,000 20,000 F 1,200,000 0 - 1,200,000
Total Costs 2,801,550 20,950 F 2,822,500 147,500 F 2,970,000
▪ DM Price Variance = Actual Quantity of Input x (Actual Price of Input – Budgeted Price of Input) = AQ
x (AP – BP) = 70,400 x ($9.5 - $10) = 35,200 F
▪ DM Quantity Variance = Budgeted Price of Input x (Actual Quantity of Input Used – Budgeted
Quantity of Input Allowed for Actual Output) = (AQ – BQ) x BP = (70,400 - 5,500 x 12 pounds/unit ) x
$10 = (70,400 –66,000) x 10 = 44,000 U
→ DM Flexible Budget Variance = 8,800 U = 35,200 F - 44,000 U
▪ DL Price Variance = Actual Quantity of Input x (Actual Price of Input – Budgeted Price of Input) = AQ
x (SP – AP) = 18,500 x ($51.5 - $50) = 27,750 U
▪ DL Quantity Variance = Budgeted Price of Input x (Actual Quantity of Input Used – Budgeted
Quantity of Input Allowed for Actual Output) = (AQ – BQ) x BP = (18,500 - 5,500 x 3.5 hours/unit ) x
$50 = (18,500 - 19,250) x $50 = 37,500 F
→ DL Flexible Budget Variance = 9,750 F = 37,500 F - 27,750 U
Question 3
Peterson Foods manufactures pumpkin scones. For January 2012, it budgeted to use 15,000 pounds of
pumpkin at $0.89 a pound. Actual usage for January 2012 were 16,000 pounds at $0.82 a pound. Peterson
budgeted for 60,000 pumpkin scones. Actual output was 60,800 pumpkin scones. Compute the direct
material flexible-budget variance and break it down into its components of price and efficiency variances.
Solution:
Budgeted input per unit = 60,000 units / 15,000 pounds = 4 units/ pound or 0.25 pound/unit
▪ Actual results = 16,000 pounds x $0.82/pound = $13,120

▪ Flexible budget = 60,800 x 0.25 pound/unit x $0.89/pound = 15,200 pounds x $0.89/pound =
$13,528
▪ Static budget = 60,000 x 0.25 pound/unit x $0.89/pound = $13,350 or 15,000 pounds x $0.89/pound
▪ Sales Volume Variance → Static Budget – Flexible Budget = $13,350 – $13,528 = 178 U
▪ Flex. Budget Variance → Flexible Budget – Actual = $13,528 – $13,120 = 408 F
▪ Price Variance = (AP – BP) x AQ = ($0.82 – $0.89) x 16,000 = 1,120 F
▪ Efficiency Variance = (AQ – BQ) x BP = (16,000 - 60,800 x 0.25) x 0.89 = 712 U
▪ Flex. Budget Variance → 1,120 F – 712 U = 408 F
Question 4
The manufacturing budget for the production of 5,000 units for the month of May included the
following information for Lee Corporation:
Direct labor (10,000 hours at $15/hour) $150,000
Variable Overhead $30,000
Fixed Overhead $80,000
During May 6,000 units were produced and the direct labor efficiency variance was $1,500 unfavorable.
Based on this information, what was the actual number of direct labor hours used in May?
Solution:
Standard Input/unit = 10,000 hours / 5,000 units = 2 hours/unit
Allowable quantity for actual output = 6,000 units x 2 hours/unit = 12,000 hours
Efficiency variance formula = (AQ – BQ) x BP → 1,500 U = (AQ - 12,000) x $15 → AQ - 12,000 = 100 →
AQ = 12,100
Question 5: Attendance
Answer

Tutorial 8 Sheet Solved MGMT 2

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→ DM Flexible Budget Variance = 8,800 U = 35,200 F - 44,000 U

▪ Actual results = 16,000 pounds x $0.82/pound = $13,120

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