Exercises for the Course Cost and Management Accounting II Assignment)

1. Tana’s Fish House is a family owned restaurant that specializes in Ethiopian style seafood. Budgeted data
concerning the restaurant’s monthly revenues and costs appear below:
Revenue $16.50 per food sold
Cost of ingredients $6.25 per food sold
Wages and Salaries $10,400
Utilities $800 + $0.20 per food sold
Rent $2,200
Miscellaneous $600 + $0.80 per food sold

The actual results for April appear below:

Revenue $27,920
Cost of ingredients $17
Wages and Salaries $10,130
Utilities $1,080
Rent $2,200
Miscellaneous $2,240
Required:
i. Prepare the restaurant’s static budget for April assuming that 1,800 foods are expected to be sold.
ii. Assume that 1,700 foods were actual sold in April. Prepare a flexible budget for this level of activity.
iii. Prepare a flexible budget and sales volume variances report for the restaurant for April.

2. Brabham Enterprises manufactures tires for the Formula I motor racing circuit. For August 2012, it
budgeted to manufacture and sell 3,000 tires at a variable cost of $74 per tire and total fixed costs of
$54,000. The budgeted selling price was $110 per tire. Actual results in August 2012 were 2,800 tires
manufactured and sold at a selling price of $112 per tire. The actual total variable costs were $229,600, and
the actual total fixed costs were $50,000.

Required:
i. Prepare aflexible budget and sales volume variances report.
ii. Comment on the results in requirement i.

3. O’Shea Company manufactures ceramic vases. It uses its standard costing system when developing its
flexible-budget amounts. In April 2012, 2,000 finished units were produced. The following information
relates to its two direct manufacturing cost categories: direct materials and direct manufacturing labor.

Direct materials used were 4,400 kilograms (kg). The standard direct materials input allowed for one output unit is
2 kilograms at $15 per kilogram. O’Shea purchased 5,000 kilograms of materials at $16.50 per kilogram, a total of
$82,500.

Actual direct manufacturing labor hours were 3,250, at a total cost of $66,300.Standard manufacturing labor time
allowed is 1.5 hours per output unit, and the standarddirect manufacturing labor cost is $20 per hour.

Required:

i. Calculate the direct materials price variance and efficiency variance.

ii. Calculate the direct manufacturing labor price variance and efficiency variance.
iii. Calculate the flexible budget variance for direct materials and direct manufacturing labor.

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 4. Mitchell Company uses a flexible budget for overhead based on direct labor hours (DLH). Master budget
figures, based on 900,000 direct labor hours, and actual overhead for March, when 80,000 labor hours
were worked, are as follows:

Master Budget March Actual

Variable:
Indirect Labor $ 225,000 $ 20,700
Indirect materials 1,350,000 119,000
Other 900,000 81,000
Fixed
Supervision 420,000 34,000
Depreciation 750,000 62,500
Other 600,000 52,000
Required: Prepare a flexible budget performance report for March.

5. Marron, Inc. produces the basic fillings used in many popular frozen desserts and treats—vanilla and
chocolate ice creams, puddings, meringues, and fudge. The ice cream product group’s results for June 2009
were:

Performance report, June 2009

Actual Results Static Budget
Units 525,000 500,000
Revenue $ 3,360,000 $ 3,250,000
Variable manufacturing costs $ 1,890,000 $ 1,750,000
Contribution margin $ 1,470,000 $ 1,500,000

Mr. Abera, the business manager for ice-cream products, is pleases that more units of ice cream were sold than
budgeted and that revenues were up. Unfortunately variable manufacturing costs went up too. The bottom line is
that contribution margin declined by $30,000, which is less than 1% of the budgeted revenues of $3,250,000.
Overall, Mr. Abera feels that the business is running fine.
Required:
i. Calculate the static-budget variance in units, revenues, variable manufacturing costs, and contribution
margin?
ii. Break down each static budget variance into a flexible-budget variance and a sales-volume variance.
iii. Calculate the selling price variance.

6. Peterson Food manufactures pumpkin scones. For January 2009, it budgeted to purchase and use 15,000
pounds of pumpkin at $0.89 a pound. Actual purchases and usage for January 2009 were 16,000 pounds at
$0.82 a pound. It budgets for 60,000 pumpkin scones. Actual output was 60,800 pumpkin scones.
Required:
i. Compute the flexible budget variance
ii. Compute the price and efficiency variances
iii. Comment on the above results and provide a possible explanation for them.

7. A piano teacher has budgeted fixed costs of $1,250 per month, and budgeted variable costs of $1,200 per
month, where variable costs are a linear function of the number of one-hour piano lessons. The piano
teacher expected to give 120 one-hour piano lessons in April, but actually gave 150 one-hour piano lessons
in April. Actual fixed costs were $1,000 and actual variable costs were $1,500. What is the flexible budget
variance for April? Is it favorable or unfavorable?

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 8. Assume the following information for the Chestnut Ridge Dog Kennel for 2004

Budgeted Actual
Number of dogs cared 50 60
for
Fixed Costs $40,000 $45,000
Variable Cost
Food $20,000 $21,000
Supplies $10,000 $13,200
Total Cost $70,000 $79,200
Required:
i. Calculate a flexible budget for 2004.
ii. Calculate the flexible budget variance for each of the three expense line-items for 2004, and indicate
whether the variance is favorable or unfavorable.

9. Louisville Corporation produces baseball bats for kids that it sells for $32 each. At capacity, the
company can produce 50,000 bats a year. The costs of producing and selling 50,000 bats are as follows:
Cost per Bat Total
Costs
Direct materials $12 $ 600,000
Direct manufacturing labor 3 150,000
Variable manufacturing overhead 1 50,000
Fixed manufacturing overhead 5 250,000
Variable selling expenses 2 100,000
Fixed selling expenses 4 200,000
Total costs $27 $1,350,000
Required: Suppose Louisville is currently producing and selling 40,000 bats. At this level of production and
sales, its fixed costs are the same as given in the preceding table. Ripkin Corporation wants to place a one-time
special order for 10,000 bats at $25 each. Louisville will incur no variable selling costs for this special order.
Should Louisville accept this one-time special order? Show your calculations.
10. Benjamin Company produces products C, J, and R from a joint production process. Each product may
be sold at the split-off point or processed further. Joint production costs of $95,000 per year are
allocated to the products based on the relative number of units produced. Data for Benjamin's operations
for last year follow:
Additional sales values and costs if
Processe
d further
Product Units Sales values at
Produced split-off Sales values Added
costs
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 C 6,000 $75,000 $100,000
$20,000
J 9,000 $70,000 $115,000
$36,000
R 4,000 $46,500 $55,000
$10,000
Required: Which products should be processed beyond the split-off point?

11. Awash Co. manufactures and sells trophies for winners of athletic and other events. Its manufacturing
plant has the capacity to produce 16,000 trophies each month; current monthly production is 12,800
trophies. The company normally charges $115 per trophy. Cost data for the current level of production
are shown below:
Variable costs:
Direct materials .......................... $614,400
Direct labor ................................. $256,000
Selling and administrative .......... $35,840
Fixed costs:
Manufacturing ............................ $294,400
Selling and administrative .......... $94,720

The company has just received a special one-time order for 1,200 trophies at $61 each. For this particular order,
no variable selling and administrative costs would be incurred. This order would also have no effect on fixed
costs.

Required: Should the company accept this special order?

THE END!!!
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BEST!!!