Exercise 1
The following data are the actual results for Marvelous Marshmallow Company for August.
Actual output ................................................................................................................13,500 cases
Actual variable overhead ..................................................................................... $607,500
Actual fixed overhead .......................................................................................... $183,000
Actual machine time .....................................................................................60,750 machine hours
Standard cost and budget information for Marvelous Marshmallow Company follows:
Standard variable-overhead rate................................................ 9.00 per machine hour
Standard quantity of machine hours .........................................4 hours per case of marshmallows
Budgeted fixed overhead........................................................ $180,000 per month
Budgeted output .....................................................................15,000 cases per month
Required:Build a spreadsheet:Construct an Excel spreadsheet to solve the preceding requirement. Show how the solution will change if the following information changes: actual output was 13,350 cases, and actual variable overhead was $609,000.
Exercise 2.
The controller for Rainbow Children's Hospital, located in Munich, Germany, estimates that the hospital uses 25 kilowatt-hours of electricity per patient-day, and that the electric rate will be €.13 per kilowatt-hour. The hospital also pays a fixed monthly charge of €2,000 to the electric utility to rent emergency backup electric generators. *
Required: Construct a flexible budget for the hospital's electricity costs using each of the following techniques.
1. Formula flexible budget.
2. Columnar flexible budget for 30,000, 40,000, and 50,000 patient-days of activity. List variable and fixed electricity costs separately.
Exercise 3
LakeMaster Company manufactures outboard motors that are sold throughout the United States and Canada. The company uses a comprehensive budgeting process and compares actual results to budgeted amounts on a monthly basis. Each month, LakeMaster's accounting department prepares a variance analysis and distributes the report to all responsible parties. Al Richmond, production manager, is upset about the results for June. Richmond, who is responsible for the cost of goods manufactured, has implemented several cost-cutting measures in the manufacturing area and is discouraged by the unfavorable variance in variable costs.
When the master budget was prepared, LakeMaster's cost accountant, Joan Ballard, supplied the following unit costs: direct material, $90; direct labor, $66; variable overhead, $54; and variable selling, $18.
The total variable costs of $1,170,000 for June include $480,000 for direct material, $288,000 for direct labor, $264,000 for variable overhead, and $138,000 for variable selling expenses. Ballard believes that monthly reports would be more meaningful to everyone if the company adopted flexible budgeting and prepared more detailed analyses.
Required:
1. Prepare a flexible budget for LakeMaster Company for the month of June that includes separate variable-cost budgets for each type of cost (direct material, etc.).
2. Determine the variance between the flexible budget and actual cost for each cost item.
3. Discuss how the revised budget and variance data are likely to impact the behavior of Al Richmond, the production manager.
4. Construct an Excel spreadsheetto solve requirements (1) and (2) above. Show how the solution will change if the following information changes: actual sales amounted to 4,700 units and actual fixed overhead was $272,000.