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Exercise 15-1
Item to Classify
Standard
Actual
Type of
Variance
Labor cost
$10.00 per hour
$9.60 per hour
Favorable
Labor usage
61,000 hours
61,800 hours
Unfavorable
Fixed cost spending
$400,000
$390,000
Favorable
Fixed cost per unit (volume)
$3.20 per unit
$3.16 per unit
Favorable
Sales volume
40,000 units
42,000 units
Favorable
Sales price
$3.60 per unit
$3.63 per unit
Favorable
Materials cost
$2.90 per pound
$3.00 per pound
Unfavorable
Materials usage
91,000 pounds
90,000 pounds
Favorable
Exercise 15-2
Item
Budget
Actual
F or U
Sales price
$650
$525
U
Sales revenue
$580,000
$600,000
F
Cost of goods sold
$385,000
$360,000
F
Material purchases at 5,000 pounds
$275,000
$280,000
U
Materials usage
$180,000
$178,000
F
Production volume
950 units
900 units
U
Wages at 4,000 hours
$60,000
$58,700
F
Labor usage at $16 per hour
$96,000
$97,000
U
Research and development expense
$22,000
$25,000
U
Selling and administrative expenses
$49,000
$40,000
F
Exercise 15-4
Master
Budget
2,000 Units
Flexible
Budget
2,200 Units
a. & b.
Volume
Variances
Sales
$16,000
$17,600
$1,600 F
Variable manufacturing
(8,000)
(8,800)
800 U

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c. Since the sales price and cost per unit are the same for both the
master and flexible budgets, the cause of the variances is
attributable solely to the fact that the sales volume was 200 units
more than planned. The favorable $1,600 sales volume variance
suggests that it is beneficial to increase sales. However, more
information is needed to confirm this conclusion. As stated in the
problem, the increase in sales may have been attained by lowering
the price which could result in negative consequences. The
unfavorable $800 variable cost volume variance is misleading. The
total amount of variable cost is expected to increase when volume
increases. This variance is expected and not necessarily a bad
thing. Upper-level marketing managers are normally responsible for
the sales and variable cost volume variances.
d. The amount of fixed cost appearing in the flexible budget is $3,000 for
manufacturing cost and $1,000 for fixed selling and administrative
costs. The fixed costs in both the master and flexible budgets are
estimates. Fixed costs are estimated to be the same regardless of the
volume of production and sales.
e.
Master
Budget
Flexible
Budget
Fixed manufacturing
$3,000
$3,000
Fixed selling and admin.
1,000
1,000
Total fixed cost (a)
$4,000
$4,000
Units (b)
2,000
2,200
Cost per unit (a b)
$2.00
$1.82
The increase in sales volume acts to reduce the fixed cost per unit,
thereby increasing profitability. The effect on net income will be
magnified as a result of operating leverage. However, the result of
initially underestimating volume could result in overpricing the
companys product. This could have an ultimate unfavorable effect
because the company could lose market share to competitors who
offer lower prices.

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 Exercise 15-1 Item to Classify Standard Actual Type of Variance Labor cost $10.00 per hour $9.60 per hour Favorable Labor usage 61,000 hours 61,800 hours Unfavorable Fixed cost spending $400,000 $390,000 Favorable Fixed cost per unit (volume) $3.20 per unit $3.16 per unit Favorable Sales volume 40,000 units 42,000 units Favorable Sales price $3.60 per unit $3.63 per unit Favorable Materials cost $2.90 per pound $3.00 per pound Unfavorable Materials usage 91,000 pounds 90,000 pounds Favorable Exercise 15-2 Item Budget Actual Variance F or U Sales price $650 $525 $125 U Sales revenue $580,000 $600,000 $20,000 F Cost of goods sold $385,000 $360,000 $25,000 F Material purchases at 5,000 pounds $275,000 $280,000 $ 5,000 U Materials usage $180,000 $178,000 $2,000 F Production volume 950 units 900 units 50 units U Wages at 4,000 hours $60,000 $58,700 $1,300 F Labor usage at $16 per hour $96,000 $97,000 $1,000 U Research and development expense $22,000 $25,000 $3,000 U Selling and administrative expenses $49,000 $40,000 $9,000 F Exercise 15-4 Master Budget 2,000 Units Flexible Budget 2,200 Units a. & b. Volume Variances Sales $16,000 $17,600 $1,600 F Variable manufac ...
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