Saturday, 13 April 2013

Harold’s Roof Repair has provided the following data concerning its costs:





Harold’s Roof Repair has provided the following data concerning its costs:


Fixed Cost
per Month

Cost per Repair-Hour

  Wages and salaries  
$
21,400     

$
15.00    
  Parts and supplies  

   

$
7.00    
  Equipment depreciation  
$
2,740     

$
.30    
  Truck operating expenses  
$
5,780     

$
1.50    
  Rent  
$
4,680     


     
  Administrative expenses  
$
3,820     

$
.40    


For example, wages and salaries should be $21,400 plus $15.00 per repair-hour. The company expected to work 2,600 repair-hours in June, but actually worked 2,500 repair-hours. The company expects its sales to be $46.00 per repair-hour.

Required:
Compute the company’s activity variances for June. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)

Harold's Roof Repair
Activity Variances
For the Month Ended June 30
  Revenue
$
  U



  Expenses:


     Wages and salaries
  F
     Parts and supplies
  F
     Equipment depreciation
  F
     Truck operating expenses
  F
     Rent
  None
     Administrative expenses
  F



  Total expense
  F



  Net operating income
$
  U







Explanation:
Harold's Roof Repair
Activity Variances
For the Month Ended June 30

Planning
Budget
Flexible
Budget
Activity Variances
  Repair-hours (q)

2,600     

 2,500  



  Revenue ($46.00q)
 $
119,600     
 $
115,000  
 $
4,600   
U








  Expenses:







     Wages and salaries ($21,400 + $15.00q)

60,400     

58,900  

1,500   
F
     Parts and supplies ($7.00q)

18,200     

17,500  

700   
F
     Equipment depreciation ($2,740 + $.30q)

3,520     

3,490  

30   
F
     Truck operating expenses ($5,780 + $1.50q)

9,680     

9,530  

150   
F
     Rent ($4,680)

4,680     

4,680  

0   
None
     Administrative expenses ($3,820 + $.40q)

4,860     

4,820  

40   
F








  Total expense

101,340     

98,920  

2,420   
F








  Net operating income
 $
18,260     
 $
16,080  
 $
2,180   
U
















The Toque Cooking Academy runs short cooking courses at its small campus. Management has identified two cost drivers that it uses in its budgeting and performance reports—the number of courses and the total number of students. For example, the school might run four courses in a month and have a total of 61 students enrolled in those four courses. Data concerning the company’s cost formulas appear below:


Fixed Cost per Month
Cost per Course
Cost per
Student
  Instructor wages


$2,920

  Classroom supplies

  

$290   
  Utilities
$
1,230   
$55

  Campus rent
$
4,700   


  Insurance
$
2,400   

   
  Administrative expenses
$
3,700   
$44
$4   


For example, administrative expenses should be $3,700 per month plus $44 per course plus $4 per student. The company’s sales should average $880 per student.

The actual operating results for October appear below:


Actual
  Revenue
$
50,780  
  Instructor wages
$
10,960  
  Classroom supplies
$
17,540  
  Utilities
$
1,860  
  Campus rent
$
4,700  
  Insurance
$
2,540  
  Administrative expenses
$
3,546  


Required:
1.
The Toque Cooking Academy expects to run four courses with a total of 61 students in October. Complete the company’s planning budget for this level of activity. (Input all amounts as positive values. Omit the "$" sign in your response.)

Toque Cooking Academy
Planning Budget
For the Month Ended October 31
  Revenue
$   
  Expenses:

    Instructor wages
  
    Classroom supplies
  
    Utilities
  
    Campus rent
  
    Insurance
  
    Administrative expenses
  


  Total expense
  


  Net operating income
$   





2.
The school actually ran four courses with a total of 59 students in October. Complete the company’s flexible budget for this level of activity. (Input all amounts as positive values. Omit the "$" sign in your response.)

Toque Cooking Academy
Flexible Budget
For the Month Ended October 31
  Revenue
$   
  Expenses:

    Instructor wages
  
    Classroom supplies
  
    Utilities
  
    Campus rent
  
    Insurance
  
    Administrative expenses
  


  Total expense
  


  Net operating income
$   





3.
Complete the flexible budget performance report that shows both activity variances and revenue and spending variances for October. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)

Toque Cooking Academy
Flexible Budget Performance Report
For the Month Ended October 31

Activity Variances
Revenue and Spending Variances
  Revenue
$   
  U      
$   
  U      





  Expenses:




     Instructor wages
  
  None      
  
  F      
     Classroom supplies
  
  F      
  
  U      
     Utilities
  
  None      
  
  U      
     Campus rent
  
  None      
  
  None      
     Insurance
  
  None      
  
  U      
     Administrative expenses
  
  F      
  
  F      





  Total expense
  
  F      
  
  F      





  Net operating income
$   
  U      
$   
  U      










Explanation:
1.

Revenue ($880 × 61) = $53,680
Instructor wages ($2,920 × 4) = $11,680
Classroom supplies ($290 × 61) = $17,690
Utilities ($1,230 + ($55 × 4)) = $1,450
Administrative expenses ($3,700 + ($44 × 4) + ($4 × 61)) = $4,120

2.

Revenue ($880 × 59) = $51,920
Instructor wages ($2,920 × 4) = $11,680
Classroom supplies ($290 × 59) = $17,110
Utilities ($1,230 + ($55 × 4)) = $1,450
Administrative expenses ($3,700 + ($44 × 4) + ($4 × 59)) = $4,112

3.
   
Toque Cooking Academy
Flexible Budget Performance Report
For the Month Ended October 31

Planning Budget
Activity
Variances
Flexible Budget
Revenue
and
Spending
Variances
Actual Results
  Courses (q1)

4  

  


4  




4  
  Students (q2)

61  

  


59  

  


59  
  Revenue($880q2)
$
53,680  
$
1,760  
U
$
51,920  
$
1,140  
U
$
50,780  













  Expenses:

  

  


  

  


  
  Instructor wages ($2,920q1)

11,680  

0  
None

11,680  

720  
F

10,960  
  Classroom supplies ($290q2)

17,690  

580  
F

17,110  

430  
U

17,540  
  Utilities ($1,230 + $55q1)

1,450  

0  
None

1,450  

410  
U

1,860  
  Campus rent ($4,700)

4,700  

0  
None

4,700  

0  
None

4,700  
  Insurance ($2,400)

2,400  

0  
None

2,400  

140  
U

2,540  
  Administrative expenses
   ($3,700 + $44q1 +$4q2)

4,120  

8  
F

4,112  

566  
F

3,546  













  Total expense

42,040  

588  
F

41,452  

306  
F

41,146  













  Net operating income
$
11,640  
$
1,172  
U
$
10,468  
$
834  
U
$
9,634  



You have just been hired by SecuriDoor Corporation, the manufacturer of a revolutionary new garage door opening device. The president has asked that you review the company’s costing system and “do what you can to help us get better control of our manufacturing overhead costs.” You find that the company has never used a flexible budget, and you suggest that preparing such a budget would be an excellent first step in overhead planning and control.
       After much effort and analysis, you determined the following cost formulas and gathered the following actual cost data for April:
  

Cost Formula
Actual Cost in April
  Utilities
  $16,700 plus $.14 per machine-hour
$
21,020    
  Maintenance
  $38,300 plus $1.50 per machine-hour
$
59,100    
  Supplies
  $.40 per machine-hour
$
7,000    
  Indirect labor
  $94,700 plus $1.80 per machine-hour
$
128,000    
  Depreciation
  $68,400
$
70,100    

  
During April, the company worked 16,000 machine-hours and produced 10,000 units. The company had originally planned to work 18,000 machine-hours during April.
  
Required:

1.
Complete a report showing the activity variances for April. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)
  
SecuriDoor Corporation
Activity Variances
For the Month Ended April 30
  Utilities
$  
  F
  Maintenance

  F
  Supplies

  F
  Indirect labor

  F
  Depreciation

  None



  Total
$  
  F





  
2.
Complete a report showing the spending variances for April. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)
  
SecuriDoor Corporation
Spending Variances
For the Month Ended April 30
  Utilities
$  
 U
  Maintenance

 F
  Supplies

 U
  Indirect labor

 U
  Depreciation

 U



  Total
$  
 U







Explanation:
1.
The activity variances are shown below:
  
SecuriDoor Corporation
Activity Variances
For the Month Ended April 30

Planning Budget
Flexible Budget
Activity
Variances
  Machine-hours (q)

18,000  

16,000  

  

    







  Utilities ($16,700 + $.14q)
$
19,220  
$
18,940  
$
280  
F
  Maintenance ($38,300 + $1.50q)

65,300  

62,300  

3,000  
F
  Supplies ($.40q)

7,200  

6,400  

800  
F
  Indirect labor ($94,700 + $1.80q)

127,100  

123,500  

3,600  
F
  Depreciation ($68,400)

68,400  

68,400  

0  
None
    







  Total
$
287,220  
$
279,540  
$
7,680  
F















  
2.
The spending variances are computed below:
  
SecuriDoor Corporation
Spending Variances
For the Month Ended April 30

Flexible Budget
Actual Results
Spending Variances
  Machine-hours (q)

16,000  

16,000  

  

    







  Utilities ($16,700 + $.14q)
$
18,940  
$
21,020  
$
2,080  
U
  Maintenance ($38,300 + $1.50q)

62,300  

59,100  

3,200  
F
  Supplies ($.40q)

6,400  

7,000  

600  
U
  Indirect labor ($94,700 + $1.80q)

123,500  

128,000  

4,500  
U
  Depreciation ($68,400)

68,400  

70,100  

1,700  
U
   







  Total
$
279,540  
$
285,220  
$
5,680  
U
















The KGV Blood Bank, a private charity partly supported by government grants, is located on the Caribbean island of St. Lucia. The blood bank has just finished its operations for September, which was a particularly busy month due to a powerful hurricane that hit neighboring islands causing many injuries. The hurricane largely bypassed St. Lucia, but residents of St. Lucia willingly donated their blood to help people on other islands. As a consequence, the blood bank collected and processed over 20% more blood than had been originally planned for the month.
      A report prepared by a government official comparing actual costs to budgeted costs for the blood bank is given below. (The currency on St. Lucia is the East Caribbean dollar.) Continued support from the government depends on the blood bank’s ability to demonstrate control over its costs.

KGV Blood Bank
Cost Control Report
For the Month Ended September 30

Planning
Budget
Actual
Results
  Variances
  Liters of blood collected

600  

780  



  Medical supplies
$
6,960  
$
9,102  
$
2,142   
U
  Lab tests

8,670  

10,842  

2,172   
U
  Equipment depreciation

1,300  

1,500  

200   
U
  Rent

1,300  

1,300  

0   

  Utilities

280  

304  

24   
U
  Administration

14,360  

14,625  

265   
U








  Total expense
$
32,870  
$
37,673  
$
4,803   
U
















     The managing director of the blood bank was very unhappy with this report, claiming that his costs were higher than expected due to the emergency on the neighboring islands. He also pointed out that the additional costs had been fully covered by payments from grateful recipients on the other islands. The government official who prepared the report countered that all of the figures had been submitted by the blood bank to the government; he was just pointing out that actual costs were a lot higher than promised in the budget.
The following cost formulas were used to construct the planning budget:



  Medical supplies
$11.60q  
  Lab tests
$14.45q  
  Equipment depreciation
$1,300    
  Rent
$1,300    
  Utilities
$280    
  Administration
$13,400 + $1.60q  


Required:

1.
Complete the performance report for September using the flexible budget approach. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Round your answers to the nearest whole dollar amount. Omit the "$" sign in your response.)

KGV Blood Bank
Flexible Budget Performance Report
For the Month Ended September 30

Activity Variances
Spending Variances
  Medical supplies
$  
U
$  
U
  Lab tests

U

F
  Equipment depreciation

None

U
  Rent

None

None
  Utilities

None

U
  Administration

U

F





  Total expense
$  
U
$  
F










Explanation:
Performance should be evaluated using a flexible budget performance report. In this case, the report will not include revenues.

KGV Blood Bank
Flexible Budget Performance Report
For the Month Ended September 30

Planning Budget
Activity
Variances
Flexible Budget
Spending Variances
Actual Results
  Liters of blood collected (q)

600  




780  

  


780  
    



  
  



  



  Medical supplies ($11.60q)
$
6,960  
$
2,088  
U
$
9,048  
$
54  
U
$
9,102  
  Lab tests ($14.45q)

8,670  

2,601  
U

11,271  

429  
F

10,842  
  Equipment depreciation ($1,300)

1,300  

0  
None

1,300  

200  
U

1,500  
  Rent ($1,300)

1,300  

0  
None

1,300  

0  
None

1,300  
  Utilities ($280)

280  

0  
None

280  

24  
U

304  
  Administration ($13,400 + $1.60q)

14,360  

288  
U

14,648  

23  
F

14,625  
    




  







  Total expense
$
32,870  
$
4,977  
U
$
37,847  
$
174  
F
$
37,673