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Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins
Edition 5ISBN: 0073526940Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins
Edition 5ISBN: 0073526940Sales and Variable Cost Variances; Current to Prior Year; Review of Chapter 14 Ross Product, Inc., manufactures a single product with the following information for the years 2009 and 2010.
| 2010 | 2009 |
Sales units | 25,000 | 22,000 |
Price | $41.00 | $40.00 |
Materials cost per unit of materials | $18.00 | $16.00 |
Materials usage (materials required per/unit of output) | 0.75 | 1.00 |
Labor usage (labor-hours required/unit) | 2.25 | 2.00 |
Wage rate ($/hour) | $ 9.00 | $10.00 |
Required
1. Determine the selling price variance for 2010 based on sales dollars. Determine the volume variance based on both (a) sales and (b) contribution margin.
2. Determine the variable cost variances (review of Chapter 14, where year 2009 is used for the budget):
a. The usage and price variances for materials (assume there is no change in inventory).
b. The usage and rate variances for labor.
3. Analyze your findings in parts 1 and 2 above.
Verified
Step 1 of 3
1.?The selling price and volume variances are as follows:
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| Sales |
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| Sales Price |
| Flexible |
| Volume |
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| 2010 |
| Variance |
| Budget |
| Variance |
| 2009 |
| Gross Sales: | $ 1,025,000 | $ 25,000 | $ 10,00,000 | $ 1,20,000 | $ 8,80,000 | ||||
Less Variable Costs |
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Materials | $ 337,500 | $ (62,500) | $ 4,00,000 | $ 48,000 | $ 3,52,000 | |||||
Labor | 5,06,250 | $ 6,250 | 5,00,000 | $ 60,000 | 4,40,000 | |||||
Total Contribution | $ 1,81,250 | $ 81,250 | $ 1,00,000 | $ 12,000 | $ 88,000 | |||||
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Selling Price Variance in Sales Dollars | $ 25,000 | Favorable |
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Sales Volume Variance in Contribtion | $ 12,000 | Favorable |
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The flexible budget, the center column, is determined as follows:
2010 sales at 2009 prices and unit variable costs
Sales: $1,000,000 = 25,000 x $40
Materials: $400,000 = 25,000 x $16 x 1 units of material/unit of output
Labor: $500,000 = 25,000 x $10 x 2 hours/unit
Selling price variance: $25,000 = ($41 - $40) x 25,000
Volume Variance
Based on sales dollars: $120,000 = (25,000 – 22,000) x $40
Based on contribution:
????= ??????????????$120,000
????Less increase in materials cost
?????(25,000 – 22,000) x $16 x 1???48,000
????Less increase in labor cost
?????(25,000 – 22,000) x $10 x 2???60,000
??Volume variance based on contribution???$12,000
Step 2 of 3
Step 3 of 3
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