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ACC 381
Chapter 7 – HO #1
1. USA Appliances (UA) is a manufacturer of toaster ovens. To improve control
over operations, the president of UA wants to begin using a flexible budgeting
system, rather than use only the current master budget.
The following data are available for UA’s expected costs at production levels of
90,000, 100,000, and 110,000 units.
Variable Costs:
Manufacturing
Administrative
Selling
$6 per unit
$4 per unit
$3 per unit
Fixed Costs
Manufacturing
Administrative
$160,000
$ 80,000
Prepare a flexible budget for each of the possible production levels:
90,000, 100,000, and 110,000 units.
2. JAG, Inc. manufactures a product that has the direct materials standard
cost presented below. Budgeted and actual information for the current
month for the manufacture of the finished product and the purchase and
use of the direct materials is also presented.
Standard cost for direct materials: 1.60 lb. @ $2.50 per lb.
Budget
Finished goods (in units)
30,000
Direct materials usage (in pounds)
?
Direct materials purchases (in pounds) 48,000
Total cost of direct materials purchases
?
Actual
32,000
50,000
50,000
$120,000
Assume that actual purchase and usage of direct materials was 50,000
pounds. Calculate the direct materials price, efficiency, and flexible-budget
variances.
7-26. PRICE AND EFFICIENCY VARIANCES. Sunshine Foods manufactures pumpkin scones.
For January 2020, it budgeted to purchase and use 14,750 pounds of pumpkin at $0.92 a
pound. Actual purchases and usage for January 2020 were 16,000 pounds at $0.85 a pound.
Sunshine budgeted for 59,000 pumpkin scones. Actual output was 59,200 pumpkin scones.
1.
2.
3.
4.
Required
1. Compute the flexible-budget variance.
2. Compute the price and efficiency variances.
3. Comment on the results for requirements 1 and 2 and provide a possible explanation
for them.
7-42. DIRECT MATERIALS AND MANUFACTURING LABOR VARIANCES, JOURNAL
ENTRIES. Varsity Corn Hole is a small business that Manny Mercado developed while in
college. He began building wooden corn hole game sets for friends, hand painted with college
colors and logos. As demand grew, he hired some workers and began to manage the operation.
Varsity Corn Hole maintains two departments: construction and painting. In the construction
department, workers use wood to make the game sets. Varsity Corn Hole has some employees
who have been with the company for a very long time and others who are new and
inexperienced. Because of the nature of the wood, workers must work around flaws in the
materials. Manny does not store inventory, and buys the wood as he receives an order.
Actual and standard data for the construction department for September 2020 are shown below:
Required
1. For the construction department, calculate the price and efficiency variances for the wood and
the price and efficiency variances for direct manufacturing labor.
2. Record the journal entries for the variances incurred.
3. Discuss logical explanations for the combination of variances that the construction
department of Varsity Corn Hole experienced.
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