ads

Saturday, 13 April 2013

You have just been hired by SecuriDoor Corporation, the manufacturer of a


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