Lecture 8

Question 1

Feedback function of responsibility centers

Answer 1

Budgets coupled with responsibility centers provide valuable feedback

Variances can suggest questions and direct attention

Question 2

Variances

Answer 2

Favourable or unfavourable

Why do actual results differ from the budgeted results

Question 3

Example static budget variance

Answer 3

Budgeted results 23,000
Actual results 18500

Static budget variance is 4500 unfavourable

Question 4

Company use 500l to distillate to produce 2500l of product. The company expects the distillatie to cost 4 per liter. In fact the company needed 600l for the budgeted amount of product and lid 2,250 for it.

Answer 4

Budgeted cost of distillate:2000(500*4)
Actual price of distillate per liter 2250/600=3.75
Lower price but higher resource use

Flexible budget variwnceS 2000-2250 =250 U
Input price variance: 3.75-4 *600 =150 F
Efficiency variance : 600-500 *4 =400 U

Flexible budget variance = input price variance + efficiency variance

Question 5

Develop a flexible budget

Answer 5

Static budget:
Units 12,000
Var man oh 30,000
Direct labour hours 4800

Actual results:
10,000
Var man oh 28,700
Direct lab hours 4100

Flexible budget:
Units 10,000
Var man oh: 4000 x 6.25 =25,000
Direct lab: 10000 x 0.4 =4000

Sales volume var:5000 (F)
Flex budget var 3700 U
Static budget var 1300 F

Calc overhead rate: 30,000/4800hb=6.25 an hour
Calc standard input per unit: 4800h /12,000 =0.4 h per unit
Direct labour hours = actual units * input per unit
Var man oh = direct lab * oh rate

Question 6

Spending variance and efficiency variance

Answer 6

Spending variance is (act input price - budgeted input price)*act quantity of input
7-6.25 *41”” =3075 U

Efficiency variance = (act quality of input - budgeted quantity of input for act output)* bud price of input

(4100-4000 ) *6.25 =625 U

Question 7

Fixed overhead variances

Answer 7

There is no sales volume variance of fixed oh costs

Budgeted fixed costs are unaffected by volume changes