Budgets and Variance Analysis
Part A
Complete Problem 8-44 (p. 341) on the Lucerne Chocolate Company.
| Flexible Budget: | ||
| Standard Input Quantities | ||
| Cost Incurred: | Allowed for Outputs | |
| Actual Inputs × | Actual Input Quantities | Achieved × |
| Actual Prices | × Standard Prices | Standard Prices |
Direct Materials:
| 3,400 lbs. × 17.3CHF | 3,400 lbs × 18CHF | 2,900 lbs. × 18CHF | |||
| =58,820CHF | = 61,200CHF | = 52,200CHF | |||
| 3,400 × .7CHF= Price variance, | 500 × 18CHF = Quantity variance, | ||||
| 2,380CHF F | 9,000CHF U | ||||
| Flexible-budget variance, 6,620 CHF U ex | |||||
Direct Labor:
| 3,925 hrs. × 38.6CHF | 3,925 hrs. × 38CHF | 3,625 hrs. × 38CHF | |||
| = 151,505CHF | = 149,150CHF | = 137,750CHF | |||
| 3,925 × .6CHF | 300 × 38CHF | ||||
| = Price variance, | Quantity variance, | ||||
| 2,355CHF U | 11,400CHF U | ||||
| Flexible-budget variance, 13,755 CHF U | |||||
Manufacturing Overhead:
| Predicted | Flexible Budget: | ||||
| Overhead Based | Standard Driver Use | ||||
| on Actual | Allowed for Outputs | ||||
| Actual Overhead | Driver Use | Achieved × | |||
| Costs Incurred | × Standard Prices | Standard Prices | |||
| 3,925 hrs. × 11CHF | 3,625 hrs. × 11CHF | ||||
| 46,675CHF | = 43,175CHF | = 39,875CHF | |||
| Spending variance, 46,675 – 43,175 = 3,500CHF U | 300 × 11CHF = Efficiency variance, 3,300CHF U | ||||
| Flexible-budget variance, 6,800CHF U | |||||
The flexible-budget allowance for any variable cost is the same as (is equal to) the total standard quantity allowed for the good units produced times the standard price.
The budget allowance under standard costing for variable costs always depends on output, the units produced. Therefore, the direct labor budget for 2,900 units is, as shown above, 2,900 units × 1.25 hours × 38CHF = 137,750CHF. For 3,900 units, the budgetary allowance would be 3,900 units × 1.25 hours × 38CHF = 185,250CHF. Note again that a budget can be established after the fact — after the number of units produced is known.
Part B
Case 8-54 (pp. 346-347) is an application to assess your ability to work with flexible budgets. This case provides budgetary information about Hopkins Community Hospital, an outpatient clinic. This is a good example of the use of a flexible budget for analyzing performance at a service sector organization. Use the information in the narrative and the supporting schedules to answer the “Required” questions.
