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John Richardson is the manufacturing production supervisor for Torsion Tool Works (TTW), a company that manufacture hand tools for mechanics. Trying to explain why he did not get the year-end bonus that he had expected, he told his wife "This is the dumbest place I've ever worked. Last year the company set up this budget assuming it would sell 250,000 units

John Richardson is the manufacturing production supervisor for Torsion Tool Works (TTW), a company that manufacture hand tools for mechanics. Trying to explain why he did not get the year-end bonus that he had expected, he told his wife "This is the dumbest place I've ever worked. Last year the company set up this budget assuming it would sell 250,000 units

Principles of Accounting Volume 2
Principles of Accounting Volume 2
19th Edition
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax
Chapter10: Short-term Decision Making
Section: Chapter Questions
Problem 5EB: Aspen Enterprises makes award pins for various events. Budget information regarding the current...
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Did TTW increase unit sales by cutting prices or by using some other strategy?
ANALYZE, THINK, COMMUNICATE ATC 8-1 Business Applications Case Static versus flexible budget variances John Richardson is the manufacturing production supervisor for Torsion Tool Works (TTW), a company that manufactures hand tools for mechanics. Trying to explain why he did not get the year-end bonus that he had expected, he told his wife, "This is the dumbest place I've ever worked. Last year the company set up this budget assuming it would sell 250,000 units. Well, it sold only 240,000. The company lost money and gave me a bonus for not using as much materials and labor as was called for in the budget. This year, the company has the same 250,000 units goal and it sells 260,000. The company's making all kinds of money. You'd think I'd get this big fat bonus. Instead, management tells me I used more materials and labor than was budgeted. They said the company would have made a lot more money if I'd stayed within my budget. I guess I gotta wait for another bad year before I get a bonus. Like I said, this is the dumbest place I've ever worked." TTW's master budget and the actual results for the most recent year of operating activity follow. Number of units Sales revenue Variable manufacturing costs Materials Labor Overhead Variable selling, general, and admin. costs Contribution margin Fixed costs Manufacturing overhead Selling, general, and admin. costs Net income Master Budget 250,000 $3,750,000 (600,000) (312,500) (337,500) (475,000) 2,025,000 (1,275,000) (470,000) $ 280,000 Actual Results 260,000 $3,950,000 (622,200) (321,000) (354,700) (501,300) 2,150,800 (1,273,100) (479,300) $ 398,400 Variances 10,000 $200,000 22,200 8,500 17,200 26,300 125,800 1,900 9,300 $118,400 For U F כ כ כ כ F FUF
Transcribed Image Text:ANALYZE, THINK, COMMUNICATE ATC 8-1 Business Applications Case Static versus flexible budget variances John Richardson is the manufacturing production supervisor for Torsion Tool Works (TTW), a company that manufactures hand tools for mechanics. Trying to explain why he did not get the year-end bonus that he had expected, he told his wife, "This is the dumbest place I've ever worked. Last year the company set up this budget assuming it would sell 250,000 units. Well, it sold only 240,000. The company lost money and gave me a bonus for not using as much materials and labor as was called for in the budget. This year, the company has the same 250,000 units goal and it sells 260,000. The company's making all kinds of money. You'd think I'd get this big fat bonus. Instead, management tells me I used more materials and labor than was budgeted. They said the company would have made a lot more money if I'd stayed within my budget. I guess I gotta wait for another bad year before I get a bonus. Like I said, this is the dumbest place I've ever worked." TTW's master budget and the actual results for the most recent year of operating activity follow. Number of units Sales revenue Variable manufacturing costs Materials Labor Overhead Variable selling, general, and admin. costs Contribution margin Fixed costs Manufacturing overhead Selling, general, and admin. costs Net income Master Budget 250,000 $3,750,000 (600,000) (312,500) (337,500) (475,000) 2,025,000 (1,275,000) (470,000) $ 280,000 Actual Results 260,000 $3,950,000 (622,200) (321,000) (354,700) (501,300) 2,150,800 (1,273,100) (479,300) $ 398,400 Variances 10,000 $200,000 22,200 8,500 17,200 26,300 125,800 1,900 9,300 $118,400 For U F כ כ כ כ F FUF
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