Chapter 21: Problem Set A

Problem 21-1A: Preparing and Analyzing a Flexible Budget Data Given: Fixed budget for Phoenix Company, with expected sales of 15,000 units. Solution Steps: 1. Classify Costs: o Identify each cost as variable or fixed. o For variable costs, determine the cost per unit by dividing total variable costs by 15,000 units. o For fixed costs, note the total amounts as fixed for the year. 2. Prepare Flexible Budgets: o Use the per-unit variable cost and total fixed costs to prepare flexible budgets at 14,000 and 16,000 units. o Adjust total variable costs by multiplying the per-unit cost by each new production level (14,000 and 16,000 units). o Keep fixed costs constant across all levels. 3. Prepare a Simple Budgeted Income Statement for 18,000 units: o Calculate Total Sales by multiplying the selling price per unit by 18,000. o Calculate Total Variable Costs by multiplying the variable cost per unit by 18,000. o Add fixed costs to calculate Total Costs. o Calculate Net Income by subtracting total costs from total sales. Check: Budgeted income at 16,000 units should be $260,000. Problem 21-2A: Preparing a Flexible Budget Performance Report Data Given: Actual results for Phoenix Company with sales of 18,000 units. Solution Steps: 1. Prepare a Flexible Budget for 18,000 units using the variable cost per unit and fixed costs from Problem 21-1A. 2. Compare Actual Results to the Flexible Budget: o Calculate the variances between actual and flexible budget amounts for each item. o Label each variance as Favorable (F) if actual costs are less than budgeted costs or Unfavorable (U) if actual costs are more than budgeted. Problem 21-3A: Flexible Overhead Budget and Variance Analysis Data Given: Antuan Company’s standard costs per unit, and budgeted overhead costs at 75% capacity. Solution Steps: 1. Prepare Flexible Overhead Budgets: o Calculate flexible budgets for 65%, 75%, and 85% capacity levels based on the standard overhead rate and budgeted overhead costs. o Adjust variable overhead proportionally to capacity levels, while keeping fixed costs constant. 2. Compute Direct Materials Variance: o Price Variance: (Actual Price−Standard Price)×Actual Quantity o Quantity Variance: (Actual Quantity−Standard Quantity)×Standard Price 3. Compute Direct Labor Variance: o Rate Variance: (Actual Rate−Standard Rate)×Actual Hours o Efficiency Variance: (Actual Hours−Standard Hours)×Standard Rate 4. Prepare a Detailed Overhead Variance Report: o Include individual variances for variable and fixed overhead items (spending, efficiency, volume). o Show whether each variance is Favorable or Unfavorable. Problem 21-4A: Computing Materials, Labor, and Overhead Variances Data Given: Trini Company’s standard costs, capacity information, and actual costs for the quarter. Solution Steps: 1. Compute Direct Materials Variance: o Use the same approach as in Problem 21-3A for price and quantity variances. 2. Compute Direct Labor Variance: o Use the same approach as in Problem 21-3A for rate and efficiency variances. 3. Compute Overhead Variances: o Controllable Variance: Difference between actual overhead and flexible budgeted overhead. o Volume Variance: Difference between flexible budgeted overhead and standard applied overhead. Problem 21-5AA: Expanded Overhead Variances Data Given: Information from Problem 21-4A. Solution Steps: 1. Compute Variable Overhead Spending and Efficiency Variances: o Spending Variance: (Actual Variable Overhead−Budgeted Variable Overhead) o Efficiency Variance: (Actual Hours−Standard Hours)×Standard Variable Rate 2. Compute Fixed Overhead Spending and Volume Variances: o Spending Variance: Difference between actual and budgeted fixed overhead. o Volume Variance: Difference between budgeted and applied fixed overhead. 3. Compute Overhead Controllable Variance: o Sum variable overhead spending, variable efficiency, and fixed overhead spending variances. Problem 21-6AA: Recording and Analyzing Variances Data Given: Amada Company’s standard cost system and variance threshold of $5,000 for investigation. Solution Steps: 1. Prepare Journal Entries for December 31: o (a) Direct Materials: Record standard cost, with variances in price and quantity as separate entries. o (b) Direct Labor: Record standard cost with rate and efficiency variances. o (c) Overhead: Record standard overhead costs with variances for controllable and volume. 2. Analyze Variances for Investigation: o Identify any variances above the $5,000 threshold for potential investigation by management.