SMG AC 222 Lecture Notes - Lecture 9: Variable Cost, Earnings Before Interest And Taxes
Document Summary
Get access
Related Documents
Related Questions
I just need to reference numbers for the calculations
how to send my question with excel attachment ?
Use with Excel | |||||||||||||
The TV Corporation manufactures 2 types of TVs. The Basic TV | |||||||||||||
and the Deluxe TV. Budgeted and actual annual operating data areas follows: | |||||||||||||
Static Budget | Basic | Deluxe | Total | ||||||||||
Number units Sold | 60,000 | 40,000 | 100,000 | ||||||||||
Total Contribution Margin | $3,480,000 | $3,444,000 | $6,924,000 | ||||||||||
Budgeted CM per unit | $58.00 | $86.10 | |||||||||||
Actual Results | |||||||||||||
Number units sold | 59,850 | 45,150 | 105,000 | ||||||||||
Total Contribution Margin | $3,650,850 | $3,612,000 | $7,262,850 | ||||||||||
But, the actual industry volume was | 300,000 | Units | |||||||||||
Prior to the beginning of the year, a consulting firm estimatedthe total volume | |||||||||||||
for volume of the Basic and Deluxe industry category to be | 310,000 | Units | |||||||||||
Required: | |||||||||||||
Calculate the following information and variances on theworksheet entitled analysis. I have tried to give some helpfulhints. | |||||||||||||
Use the contribution margin approach in the following salesvariance analysis that follows. | |||||||||||||
a. Calculate the Static-budget variance. | I have tried to set up a model to use on the analysisworksheet. | Look at Exhibit 14-11 p.571 | |||||||||||
b. Calculate the contribution margin for the flexiblebudget. | |||||||||||||
c. Calculate the flexible budget variance. | |||||||||||||
d. Calculate the sales-volume variance. | |||||||||||||
e. Compute the actual sales-mix | |||||||||||||
f. Compute the budgeted sales-mix | |||||||||||||
g . Compute the sales-mix variance for each product andthen the total sales-mix variance like the table shown onpage 572. I have set up the table for you to fill in. | |||||||||||||
h. Compute the sales-quantity variance by type of machine andtotal | |||||||||||||
if total actual quantity is greater than total budgeted unitsthe sales-quantity will always be F and the opposite will occurwhen actual is less than budgeted). | |||||||||||||
i. Compute the market-share variance | |||||||||||||
j. Compute the market-size variance. | 4 | ||||||||||||
k. Comment on the results of the above variance analysis. Makesure your comments identify specific variances and | |||||||||||||
the impact of these variances on income. | |||||||||||||
Do not forget to use the IF function to determine if thevariance is favorable or unfavorable. | ||||||
I used a formula approach like the author did and I expecteveryone to use cell references and use the Problem 2 worksheet asyour data for cell references. | ||||||
I will take off 5 pts. if you have not used cell references fromthe problem 2 worksheet as your reference for the calculations. Iwill take off 3 pts. for not using IF statements or 1/2 each. | ||||||
When you are adding multiple variances, either use the SUMIFfunction or a nested IF. | ||||||
Also, make sure you are using ABS function, since variancesshould not be positive and negative. | ||||||
I have color coded some areas that should match, since you canuse these variances to check your work since they should equal eachother. | ||||||
Comments in "K" are worth 1 pt. You need to clearly identifymultiple sales variance you have calculated and the impact inincome. | ||||||
a. Calculate the Static-budget variance. | $338,850 | F | ||||
Static Budgeted Variance =Actual total contribution margin lessStatic total Contribution margin | ||||||
Look at level 1 in Panel C in exhibit 14-11. | ||||||
b. Calculate the contribution margin for the flexiblebudget. | ||||||
Basic | Deluxe | Total | ||||
Budgeted contribution margin per unit | $58 | $86 | Do not Total | |||
Actual Number of units sold | Do not Total | |||||
Flexible -Budget Contribution Margin | ||||||
c. Calculate the flexible budget variance. | ||||||
d. Calculate the sales-volume variance. | ||||||
Check Figure: static budget variance=flexible budget | ||||||
variance+Sales volume Variance | ||||||
Basic | Deluxe | |||||
e. Calculate the Actual sales mix: | ||||||
f. Calculate the Budgeted sales mix: | ||||||
g . Compute the sales-mix variance for each product and then thetotal sales-mix variance like the table shown on page 572. I haveset up the table for you to fill in. | ||||||
Actual Units of All products sold | (Actual sales-mix%-Budgeted Sales Mix% | Budgeted Contribution Margin per unit | Sales-Mix Variance | |||
Basic | ||||||
Deluxe | ||||||
g. Total Sales mix variance | ||||||
Compute the sales-quantity variance by type of product andtotal. | ||||||
Basic | ||||||
Deluxe | ||||||
h. Total Sales quantity variance | ||||||
Check Figure: Sales-volume variance=Sales mixvariance+Sales Quantity Variance | ||||||
Calculate the Actual market share: | ||||||
Calculate the Budgeted market share: | ||||||
Calculate the budgeted contribution margin | ||||||
per composite unit of budgeted mix | ||||||
Lastly: | ||||||
I. Market-share Variance | ||||||
j. Compute the market-size variance. | ||||||
Check Figure: Sales-quantity variance=Market-sharevariance+Market size Variance | ||||||
k. Comment on the results of the above variance analysis. Makesure your comments identify specific variances and the impact ofthese variances on income. | ||||||
Stevens Center is a nonprofit organization devoted its stagingplays for children. The theater has a very small | ||||||
full-time professional administrative staff. Through a specialarrangement with the actors' union, actors | ||||||
and directors rehearse without pay and are paid only for actualperformances. | ||||||
The costs from the current year's planning budget appear below.Steven Center had tentatively planned to put | ||||||
on six different productions with a total of 108 performances.For example, one of the productions was The Lion King, | ||||||
which has a six-week run with three performances on eachweekend. | ||||||
Stevens Center | ||||||
Costs from the Planning Budget | ||||||
For the Year Ended December 31 | ||||||
Budgeted number of productions | 6 | |||||
Budgeted number of performances | 108 | |||||
Actors' and directors' wages | $215,000 | |||||
Stagehands' wages | 31,900 | |||||
Ticket booth personnel and ushers' wages | 16,400 | |||||
Scenery, costumes, and props | 107,900 | |||||
Theater hall rent | 53,000 | |||||
Printed programs | 26,800 | |||||
Publicity | 12,200 | |||||
Administrative expense | 44,200 | |||||
Total | $507,400 | |||||
Some of the costs vary with the number of productions, some withthe number of performances, and | ||||||
some are fixed and depend on neither the number of productionsnor the number of performances. | ||||||
The costs of scenery, costumes, props, and publicity vary withthe number of productions. | ||||||
It doesn't make any differences how many times The Lion King isperformed, the cost of the | ||||||
scenery is the same. Likewise, the cost of publicizing a playwith posters and radio commericals is the | ||||||
same whether there are 10,20 or 30 performances of the play. Onthe other hand, the wages of | ||||||
the actors, directors, stagehands, ticket booth personnel, andushers vary with the number of | ||||||
perofrmances. The greater the number of performances, the higherthe wage costs will be. Similarily, | ||||||
the costs of renting the hall and printing the programs willvary with the number of performances. | ||||||
Administrative expenses are more difficult to pin down, but thebest estimate is that approximately | ||||||
75% of the budgeted costs are fixed, 15% depend on the number ofproductions staged, and the | ||||||
remaining 10% depend on the number of performances. | ||||||
After the beginning of the year, the board of directors of thetheater authorized expanding the | ||||||
theater's program to seven productions and a total of 168performances. Not surprisingly, actual | ||||||
costs were considerably higher than the costs from the planningbudget. (Grants from donors | ||||||
and ticket sales were also correspondingly higher, but are notshown here.) Data concerning the | ||||||
actual costs appear below: | ||||||
Stevens Center | ||||||
Costs from the Planning Budget | ||||||
For the Year Ended December 31 | ||||||
Actual number of productions | 7 | |||||
Actual number of performances | 168 | |||||
Actors' and directors' wages | $341,600 | |||||
Stagehands' wages | 49,500.00 | |||||
Ticket booth personnel and ushers' wages | 25,800.00 | |||||
Scenery, costumes, and props | 130,700.00 | |||||
Theater hall rent | 78,100.00 | |||||
Printed programs | 38,400.00 | |||||
Publicity | 15,200.00 | |||||
Administrative expense | 47,100.00 | |||||
Total | $726,400 | |||||
1. Prepare a flexible budget for the Stevens Center based on theactual activity of the year. | ||||||
2. Prepare a flexible budget performance report for the yearthat shows both spending variance | ||||||
and activity variances. | ||||||
Stevens Theater | ||||||
Flexible Budget Performance Report | ||||||
For the Year Ended December 31 | ||||||
Actual Results | Spending Variances | Flexible Budget | Activity Variances | Planning Budget | ||
Actual number of productions | 7 | |||||
Actual number of performances | 168 | |||||
Actors' and directors' wages | $341,600 | |||||
Stagehands' wages | 49,500.00 | |||||
Ticket booth personnel and ushers' wages | 25,800.00 | |||||
Scenery, costumes, and props | 130,700.00 | |||||
Theater hall rent | 78,100.00 | |||||
Printed programs | 38,400.00 | |||||
Publicity | 15,200.00 | |||||
Administrative expense | 47,100.00 | |||||
Total | $726,400 | |||||
3. If you were on the board of directors of the theater, wouldyou be pleased with how | ||||||
costs were controlled during the year? Why or why not? | ||||||
4. The cost formula provide figures for the average cost perproduction and average cost per performance. | ||||||
How accurate do you think these figures would be for predictingthe cost of a new production or of an additiional performance of aparticular production? | ||||||
Several years ago, Westmont Corporation developed acomprehensive budgeting system for planning and control purposes.While departmental supervisors have been happy with the system, thefactory manager has expressed considerable dissatisfaction with theinformation being generated by the system.
A typical departmental cost report for a recent periodfollows:
| Assembly Department Cost Report For the Month Ended March 31 | |||||||
| Actual Results | Planning Budget | Variances | |||||
| Machine-hours | 50,000 | 55,000 | |||||
| Variable costs: | |||||||
| Supplies | $ | 48,950 | $ | 52,250 | $ | 3,300 | F |
| Scrap | 32,400 | 33,000 | 600 | F | |||
| Indirect materials | 82,800 | 88,000 | 5,200 | F | |||
| Fixed costs: | |||||||
| Wages and salaries | 89,250 | 90,000 | 750 | F | |||
| Equipment depreciation | 70,000 | 70,000 | â | ||||
| Total cost | $ | 323,400 | $ | 333,250 | $ | 9,850 | F |
After receiving a copy of this cost report, the supervisor ofthe Assembly Department stated, âThese reports are super. It makesme feel really good to see how well things are going in mydepartment. I canât understand why those people upstairs complainso much about the reports.â
For the last several years, the companyâs marketing departmenthas chronically failed to meet the sales goals expressed in thecompanyâs monthly budgets.
Required:
1. The companyâs president is uneasy about the cost reports,what can be the reason? (You may select more than oneanswer. Single click the box with the question mark to produce acheck mark for a correct answer and double click the box with thequestion mark to empty the box for a wrong answer.)
| Cost reports are ineffective sincebudgeted costs at one level of activity are compared to actualcosts at another level of activity. | |
| Cost reports show whether fixedcosts are controlled and do not show whether variable costs arecontrolled. | |
| Cost reports are effective sincebudgeted costs at one level of activity are compared to actualcosts at another level of activity. | |
| Cost reports show whether fixedcosts and variable costs are controlled. |
2. What kind of reports should be used to give better insightinto how well departmental supervisors are controlling costs?
| Flexible budget performance reportsmust be used | |
| Fixed budget performance reportsmust be used |
3. Complete the new performance report for the quarter, based onFlexible Budget Performance approach. (Indicate the effectof each variance by selecting "F" for favorable, "U" forunfavorable, and "None" for no effect (i.e., zero variance). Inputall amounts as positive values.)
4. Were costs well controlled in March?
