Qty.
Qty.
Allowed
Allowed
Allowed
for
for
for
(Actual
(Actual
(Actual
Input
Input
Input
Qty.
Qty.
Qty.
Actual
Actual
Actual
Input
Input
Input
Qty.
Qty.
Qty.
Actual
Actual
Actual
Output
Output
Output
×
×
Actual
Actual
Actual
Price)
Price)
Price)
×
Budgeted
Budgeted
Budgeted
Price
Price
Price
Budgeted
Budgeted
Budgeted
Price)
Price)
Price)
Direct materials
$594,000
a
$540,000
b
$600,000
c
$54,000 U
$60,000 F
Price variance
Efficiency variance
$6,000 F
Flexiblebudget variance
Direct manufacturing labor
$950,000
a
$1,000,000
e
$960,000
f
$50,000 F
$40,000 U
Price variance
Efficiency variance
$10,000 F
Flexiblebudget variance
a
54,000 pounds × $11/pound = $594,000
b
54,000 pounds × $10/pound = $540,000
c
6,000 statues × 10 pounds/statue × $10/pound = 60,000 pounds × $10/pound = $600,000
d
25,000 pounds × $38/pound = $950,000
e
25,000 pounds × $40/pound = $1,000,000
722
f
6,000 statues × 4 hours/statue × $40/hour = 24,000 hours × $40/hour = $960,000
723
731
731
731
(30 min.)
Variance
Variance
Variance
analysis,
analysis,
analysis,
nonmanufacturing
nonmanufacturing
nonmanufacturing
setting
setting
setting
1.
Static Budget
Static Budget
Static Budget
Budget
Budget
Budget
Actual
Actual
Actual
Cars Detailed
200
225
25
F
Revenue
30,000
$
39,375
$
9,375
$
F
Variable Costs
Costs of supplies
1,500
2,250
750
U
Labor
5,600
6,000
400
U
Total Variable Costs
7,100
8,250
1,150
U
Contribution Margin
22,900
31,125
8,225
F
Fixed Costs
9,500
9,500

Operating Income
13,400
$
21,625
$
8,225
$
F
Lightning Car Detailing
Income Statement Variances
For the month ended June 30, 2011
Variance
Variance
Variance
2.
To compute flexible budget variances for revenues and the variable costs, first calculate the
budgeted cost or revenue per car, and then multiply that by the actual number of cars detailed.
Subtract the actual revenue or cost, and the result is the flexible budget variance.
FBV(Revenue) = Actual Revenue  Actual number of cars
(Budgeted revenue/budgeted # cars)
= $39,375  225
($30,000/200)
= $39,375  $33,750
= $5,625 Favorable
FBV(Supplies) = Actual Supplies expense  Actual number of cars
(Budgeted cost of
supplies/budgeted # cars)
= $2,250  225
($1,500/200)
= $2,250  $1,687.50
= $562.50 Unfavorable
FBV(Labor)
= Actual Labor expense  Actual number of cars
(Budgeted cost of
labor/budgeted # cars)
= $6,000  225
($5,600/200)
= $6,000  $6,300
= $300 Favorable
724
The flexible budget variance for fixed costs is the same as the static budget variance, and
equals $0 in this case. Therefore, the overall flexible budget variance in income is given
by aggregating the variances computed earlier, adjusting for whether they are favorable
or unfavorable. This yields:
FBV(Operating Income) = $5,625F () $562.50U (+) $300F = $5,362.50.
3.
In addition to understanding the variances computed above, Stevie should attempt to keep
track of the number of cars worked on by each employee, as well as the number of hours
actually spent on each car. In addition, Stevie should look at the prices charged for
detailing, in relation to the hours spent on each job.
4.
This is just a simple problem of two equations & two unknowns. The two equations
relate to the
number of cars detailed and the labor costs (the wages paid to the employees).
X = number of cars detailed by longterm employee
Y = number of cars detailed by both shortterm employees (combined)
Budget:
X + Y
=
200
Actual:
X + Y
=
225
40X + 20Y = 5600
40X + 20Y = 6000
Substitution:
Substitution:
40X + 20(200X) = 5600
40X + 20(225X) = 6000
20X = 1600
20X = 1500
X=80
X = 75
Y=120
Y=150
Therefore the long term employee is budgeted to detail 80 cars, and the new
employees are budgeted to detail 60 cars each.