Chapter 9, Problem 9.15E

1.

To determine

Prepare production department’s planning budget.

Introduction: Variance means the difference in value which comes when actual figure and estimated or budgeted figure are compared. It is helpful in finding out the cause of difference that arises between figures and formulates the corrective measure, which helps to reduce all those difficulties.

Answer to Problem 9.15E

The production department’s planning budget is $\$254,500$

Explanation of Solution

Prepare production department’s planning budget

Particulars	Amount
Budget labor hours   $\left(a\right)$	$8000hours$
Direct labor   $\left(\$15.80\left(a\right)\right)$	$\$126,400$
Indirect labor   $\left(\$8,200+\left(\$1.60\times \left(a\right)\right)\right)$	$\$21,000$
Utilities   $\left(\$6,400+\left(\$0.80\times \left(a\right)\right)\right)$	$\$12,800$
Supplies   $\left(\$1,100+\left(\$0.40\times \left(a\right)\right)\right)$	$\$4,300$
Equipment depreciation   $\left(\$23,000+\left(\$3.70\times \left(a\right)\right)\right)$	$\$52,600$
Factory rent	$\$8,400$
Property taxes	$\$2,100$
Factory administration   $\left(11,700+\left(\$1.90\times \left(a\right)\right)\right)$	$\$26,900$
Total expenses	$\$254,500$

2.

To determine

Prepare production department’s flexible budget.

Introduction: Variance means the difference in value which comes when actual figure and estimated or budgeted figure are compared. It is helpful in finding out the cause of difference that arises between figures and formulates the corrective measure, which helps to reduce all those difficulties.

Answer to Problem 9.15E

The production department’s flexible budget is $\$264,180$

Explanation of Solution

Prepare production department’s flexible budget

Particulars	Amount
Actual labor hours   $\left(a\right)$	$8400hours$
Direct labor   $\left(\$15.80\left(a\right)\right)$	$\$132,720$
Indirect labor   $\left(\$8,200+\left(\$1.60\times \left(a\right)\right)\right)$	$\$21,640$
Utilities   $\left(\$6,400+\left(\$0.80\times \left(a\right)\right)\right)$	$\$13,120$
Supplies   $\left(\$1,100+\left(\$0.40\times \left(a\right)\right)\right)$	$\$4,460$
Equipment depreciation   $\left(\$23,000+\left(\$3.70\times \left(a\right)\right)\right)$	$\$54,080$
Factory rent	$\$8,400$
Property taxes	$\$2,100$
Factory administration   $\left(11,700+\left(\$1.90\times \left(a\right)\right)\right)$	$\$27,660$
Total expenses	$\$264,180$

3.

To determine

Prepare production department’s flexible budget performance report, including both spending and activity variances.

Introduction: Variance means the difference in value which comes when actual figure and estimated or budgeted figure are compared. It is helpful in finding out the cause of difference that arises between figures and formulates the corrective measure, which helps to reduce all those difficulties.

Answer to Problem 9.15E

The production department’s flexible budget performance report shows the net revenue and spending variances is $\$1,310\left(U\right)$ and activity variance is $\$9,680\left(U\right)$

Explanation of Solution

Prepare flexible budget performance report.

Particulars	Actual results	Spending variances	Flexible budget	Activity variances	Planning budget
Labor hours   $\left(a\right)$	$8400hours$		$8400hours$		$8000hours$
Direct labor   $\left(\$15.80\left(a\right)\right)$	$\$134,730$	$\$2,010\left(U\right)$	$\$132,720$	$\$6,320\left(U\right)$	$\$126,400$
Indirect labor   $\left(\$8,200+\left(\$1.60\times \left(a\right)\right)\right)$	$\$19,860$	$\$1,780\left(F\right)$	$\$21,640$	$\$640\left(U\right)$	$\$21,000$
Utilities   $\left(\$6,400+\left(\$0.80\times \left(a\right)\right)\right)$	$\$14,570$	$\$1,450\left(U\right)$	$\$13,120$	$\$320\left(U\right)$	$\$12,800$
Supplies   $\left(\$1,100+\left(\$0.40\times \left(a\right)\right)\right)$	$\$4,980$	$\$520\left(U\right)$	$\$4,460$	$\$160\left(U\right)$	$\$4,300$
Equipment depreciation   $\left(\$23,000+\left(\$3.70\times \left(a\right)\right)\right)$	$\$54,080$	$\$0$	$\$54,080$	$\$1,480\left(U\right)$	$\$52,600$
Factory rent	$\$8,700$	$\$330\left(U\right)$	$\$8,400$	$\$0$	$\$8,400$
Property taxes	$\$2,100$	$\$0$	$\$2,100$	$\$0$	$\$2,100$
Factory administration   $\left(11,700+\left(\$1.90\times \left(a\right)\right)\right)$	$\$26,470$	$\$1,190\left(F\right)$	$\$27,660$	$\$760\left(U\right)$	$\$26,900$
Total expenses	$\$265,490$	$\$1,310\left(U\right)$	$\$264,180$	$\$9,680\left(U\right)$	$\$254,500$

4.

To determine

Aspects of flexible which should be brought to management’s attention.

Introduction: Variance means the difference in value which comes when actual figure and estimated or budgeted figure are compared. It is helpful in finding out the cause of difference that arises between figures and formulates the corrective measure, which helps to reduce all those difficulties.

Answer to Problem 9.15E

The unfavorable activity variance is $\$9,680$ and an unfavorable spending variance is $\$1,310$ are major concern of the management.

Explanation of Solution

The computation of unfavorable activity variance is $\$9,680$ and an unfavorable spending variance is $\$1,310$ this made the management more concerned about the changes in the values. As variance is the difference in value which arises when actual figure and estimated or budgeted figure occurs major difference.