Explanation Given: The actual results and flexible budget are given for each item of the given subunit as follows: Xtreme-Subunit X Actual Results Flexible Budget Direct Materials $28,200 $26,100 Direct Labor $13,500 $14,200 Indirect Labor $26,500 $23,500 Utilities $12,700 $11,600 Depreciation $26,000 $26,000 Repairs and Maintenance $4,000 $5,000 Total $110,900 $106,400 Since the items of the given subunit are the costs and/or expenses incurred by the company, therefore, the flexible budget variance is favorable (F) if the actual results are less than the flexible budget and is unfavorable (U) if the actual results are more than the flexible budget. Also, % variance is favorable if the flexible budget variance is favorable and is unfavorable if the flexible budget variance is unfavorable. The flexible budget variance (F or U) and % variance for each item of the given subunit are calculated as follows: Formula used: If the actual results are less than the flexible budget, the following formula is used to calculate the favorable flexible budget variance: F a v o r a b l e F l e x i b l e B u d g e t V a r i a n c e = F l e x i b l e B u d g e t − A c t u a l Re s u l t s If the actual results are more than the flexible budget, the following formula is used to calculate the unfavorable flexible budget variance: U n f a v o r a b l e F l e x i b l e B u d g e t V a r i a n c e = A c t u a l Re s u l t s − F l e x i b l e B u d g e t The following formula is used to calculate the % variance: % V a r i a n c e = ( F l e x i b l e B u d g e t V a r i a n c e F l e x i b l e B u d g e t ) × 100 Calculation: We will first calculate the flexible budget variance for all the costs and/or expenses of the given subunit as follows: For Direct Materials, since its actual results are more than its flexible budget, therefore, it has an unfavorable flexible budget variance which is calculated by using the ‘Unfavorable Flexible Budget Variance’ formula as follows: U n f a v o r a b l e F l e x i b l e B u d g e t V a r i a n c e = $ 28 , 200 − $ 26 , 100 U n f a v o r a b l e F l e x i b l e B u d g e t V a r i a n c e = $ 2 , 100 For Direct Labor, since its actual results are less than its flexible budget, therefore, it has a favorable flexible budget variance which is calculated by using the ‘Favorable Flexible Budget Variance’ formula as follows: F a v o r a b l e F l e x i b l e B u d g e t V a r i a n c e = $ 14 , 200 − $ 13 , 500 F a v o r a b l e F l e x i b l e B u d g e t V a r i a n c e = $ 700 For Indirect Labor, since its actual results are more than its flexible budget, therefore, it has an unfavorable flexible budget variance which is calculated by using the ‘Unfavorable Flexible Budget Variance’ formula as follows: U n f a v o r a b l e F l e x i b l e B u d g e t V a r i a n c e = $ 26 , 500 − $ 23 , 500 U n f a v o r a b l e F l e x i b l e B u d g e t V a r i a n c e = $ 3 , 000 For Utilities, since its actual results are more than its flexible budget, therefore, it has an unfavorable flexible budget variance which is calculated by using the ‘Unfavorable Flexible Budget Variance’ formula as follows: U n f a v o r a b l e F l e x i b l e B u d g e t V a r i a n c e = $ 12 , 700 − $ 11 , 600 U n f a v o r a b l e F l e x i b l e B u d g e t V a r i a n c e = $ 1 , 100 For Depreciation, since its actual results are equal to its flexible budget, therefore, its flexible budget variance is nil i... To determine 2. The type of responsibility center this subunit is. To determine 3. The items that should be investigated if part of management’s decision criteria is to investigate all variances exceeding $2,500 or 10%. To determine 4. Whether only unfavorable variances should be investigated.

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Definition Definition Measure used to estimate the difference between the budgeted and annual proportion for a specific accounting year. A favorable budget variance refers to positive variances or gains, while unfavorable or negative variances refer to a shortfall in the budget. A budget variance is indicative of the instances where the actual costs incurred are higher or lower than the estimated costs.

Chapter 24, Problem E24.22E

To determine

Concept Introduction

Responsibility Center: It is a subunit of a company, headed by a manager who holds responsibility towards its activities and results.

Flexible Budget: It is a type of budget that changes based on the volume of business activity.

Flexible Budget Variance: It is the difference between the flexible budget and the actual results of a subunit’s items.

1.

To Complete: The performance evaluation report for the given subunit.

To determine

2.

The type of responsibility center this subunit is.

To determine

3.

The items that should be investigated if part of management’s decision criteria is to investigate all variances exceeding $2,500 or 10%.

To determine

4.

Whether only unfavorable variances should be investigated.

Expert Solution & Answer

Chapter 24 Solutions

MyLab Accounting with Pearson eText -- Access Card -- for Horngren's Accounting, The Financial Chapters (My Accounting Lab)

Ch. 24 - Prob. 1QC Ch. 24 - Which is not one of the potential advantages of...Ch. 24 - The Quaker Foods division of PepsiCo is most...Ch. 24 - Which of the following is not a goal of...Ch. 24 - Which of the following balanced scorecard...Ch. 24 - The performance evaluation of a cost center is...Ch. 24 - Prob. 7QC Ch. 24 - Prob. 8QC Ch. 24 - Prob. 9QC Ch. 24 - Prob. 10QC

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