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11-2 The advantage of a flexible budget is that it is responsive to changes in the activity
level. It enables a comparison between actual costs incurred at the actual level of
activity and the standard allowed costs that should have been incurred at the actual
level of activity.
SOLUTIONS TO EXERCISES
EXERCISE 11-22 (20 MINUTES)
**Consistent with the discussion in the text, we choose not to interpret the volume variance
as either favorable or unfavorable. Some accountants would designate a positive volume
variance as "unfavorable" and a negative volume variance as "favorable."
c. Inspection: $3,300
b. Using the conventional flexible budget: $500 U (actual cost minus flexible budget =
$3,500 – $3,000)
Explanatory Notes:
Total applied overhead = total standard hours × total standard overhead rate
$408,000 = X × $8.50
X = 48,000 = total standard hrs.
total standard hrs.
Actual production =
standard hrs. per unit
48,000
= = 12,000 units
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*Consistent with the discussion in the text, we choose not to interpret the volume variance as
either favorable or unfavorable. Some accountants would designate a positive volume
variance as "unfavorable" and a negative volume variance as "favorable."
1. Susan Porter recommended that EduSoft use flexible budgeting in this situation because a
flexible budget would allow Mark Fletcher to compare EduSoft's actual selling expenses
(based on current month's actual activity) with budgeted selling expenses. In general, flexible
budgets:
• Provide management with the tools to evaluate the effects of varying levels of activity on
costs, revenues, and profits.
• Enable management to improve planning and decision making.
• Improve the analysis of actual results.
2. EDUSOFT CORPORATION
REVISED MONTHLY SELLING EXPENSE REPORT FOR OCTOBER
Flexible
Budget Actual Variance
Advertising ...................................................... $3,300,000 $3,320,000 $20,000 (U)
Staff salaries ................................................... 250,000 250,000 0
Sales salariesa ................................................. 230,400 230,800 400 (U)
Commissionsb ................................................. 992,000 992,000 0
Per diem expensec .......................................... 316,800 325,200 8,400 (U)
Office expensesd ............................................. 732,000 716,800 15,200 (F)
Shipping expensese ........................................ 1,985,000 1,953,000 32,000 (F)
Total expenses................................................ $7,806,200 $7,787,800 $18,400 (F)
Supporting calculations:
Budgeted amount
$2,400 × 96 = $230,400.
bCommission rate
$896,000 ÷ $22,400,000 = .04.
Budgeted amount
$24,800,000 × .04 = $992,000.
6. $294,150c
9. $7,500 Ud
10. $9,000 Fe
11. $(126,000) (Negative)f (The negative sign means that applied fixed overhead
exceeded budgeted fixed overhead.)
19. $270,000j
20. $756,000k
4. $25,600c
5. $72,000d
6. $32,000e
7. $76,320f
19. $25,600k
20. $57,600l
= SVR(AH – SH)
$1,600 F = SVR(6,000 – 6,400)
SVR = $4
bStandard fixed-overhead rate
= total standard overhead rate – SVR
= $13 – $4 = $9
*Note that the signs cancel when adding variances of different signs.
= $18,720 underapplied
budgeted fixed overhead
iBudgeted direct-labor hours =
fixed-overhead rate
= $72,000
$9
= 8,000
budgeted direct-labor hours
Budgeted production =
standard hours per unit
8,000
= = 1,000 units
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