1. Chapter 23 Flexible Budgets and Standard Cost Systems Demonstration Problems © 2016 Pearson Education, Inc.23-1

2. E23-15 © 2016 Pearson Education, Inc.23-2 Safe Now sells its main product, ergonomic mouse pads, for $13 each. Its variable cost is $5.30 per pad. Fixed costs are $220,000 per month for volumes up to 65,000 pads. Above 65,000 pads, monthly fixed costs are $275,000. Prepare a monthly flexible budget for the product, showing sales revenue, variable costs, fixed costs, and operating income for volume levels of 35,000, 55,000, and 269,500 pads.

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4. E23-15 © 2016 Pearson Education, Inc.23-4 Budget Amount Per Unit×Units=Total Budget Amount $13.00×35,000=$455,000

5. E23-15 © 2016 Pearson Education, Inc.23-5 Budget Amount Per Unit×Units=Total Budget Amount $5.30×35,000=$185,500

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9. E23-15 © 2016 Pearson Education, Inc.23-9 Budget Amount Per Unit×Units=Total Budget Amount $13.00×55,000=$715,000

10. E23-15 © 2016 Pearson Education, Inc.23-10 Budget Amount Per Unit×Units=Total Budget Amount $5.30×55,000=$291,500

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14. E23-15 © 2016 Pearson Education, Inc.23-14 Budget Amount Per Unit×Units=Total Budget Amount $13.00×80,000=$1,040,000

15. E23-15 © 2016 Pearson Education, Inc.23-15 Budget Amount Per Unit×Units=Total Budget Amount $5.30×80,000=$424,000

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19. E23-19 © 2016 Pearson Education, Inc.23-19 Pro Fender, which uses a standard cost system, manufactured 20,000 boat fenders during 2016, using 146,000 square feet of extruded vinyl purchased at $1.05 per square foot. Production required 410 direct labor hours that cost $15.00 per hour. The direct materials standard was seven square feet of vinyl per fender, at a standard cost of $1.10 per square foot. The labor standard was 0.026 direct labor hour per fender, at a standard cost of $14.00 per hour. Compute the cost and efficiency variances for direct materials and direct labor. Does the pattern of variances suggest Pro Fender’s managers have been making trade-offs? Explain.

20. E23-19 © 2016 Pearson Education, Inc.23-20 Cost and efficiency variances for direct materials:

21. E23-19 © 2016 Pearson Education, Inc.23-21 Cost and efficiency variances for direct materials:

22. E23-19 © 2016 Pearson Education, Inc.23-22 Cost and efficiency variances for direct materials:

23. E23-19 © 2016 Pearson Education, Inc.23-23 Cost and efficiency variances for direct materials:

24. E23-19 © 2016 Pearson Education, Inc.23-24 Cost and efficiency variances for direct materials:

25. E23-19 © 2016 Pearson Education, Inc.23-25 Cost and efficiency variances for direct materials: * 7 sq. feet per fender × 20,000 fenders = 140,000 standard sq. feet

26. E23-19 © 2016 Pearson Education, Inc.23-26 Cost and efficiency variances for direct materials: * 7 sq. feet per fender × 20,000 fenders = 140,000 standard sq. feet

27. E23-19 © 2016 Pearson Education, Inc.23-27 Cost and efficiency variances for direct labor:

28. E23-19 © 2016 Pearson Education, Inc.23-28 Cost and efficiency variances for direct labor:

29. E23-19 © 2016 Pearson Education, Inc.23-29 Cost and efficiency variances for direct labor:

30. E23-19 © 2016 Pearson Education, Inc.23-30 Cost and efficiency variances for direct labor:

31. E23-19 © 2016 Pearson Education, Inc.23-31 Cost and efficiency variances for direct labor:

32. E23-19 © 2016 Pearson Education, Inc.23-32 Cost and efficiency variances for direct labor: * 0.026 DLHr per fender × 20,000 fenders = 520 standard DLHr

33. E23-19 © 2016 Pearson Education, Inc.23-33 Cost and efficiency variances for direct labor: * 0.026 DLHr per fender × 20,000 fenders = 520 standard DLHr

34. E23-19 © 2016 Pearson Education, Inc.23-34 Does the pattern of variances suggest Pro Fender’s managers have been making trade-offs? Explain.

35. E23-19 © 2016 Pearson Education, Inc.23-35 Does the pattern of variances suggest Pro Fender’s managers have been making trade-offs? Explain. There may be trade-offs between the direct materials cost variance and the direct materials efficiency variance. Decisions made by the purchasing manager may affect the direct materials efficiency variance for the production manager. Pro Fender’s purchasing manager may have purchased lower quality (less expensive) direct materials, leading to the $7,300 favorable direct materials cost variance (the $1.05 actual direct materials cost per square foot was less than the $1.10 direct materials standard cost per square foot for the 146,000 square feet actually purchased).

36. E23-19 © 2016 Pearson Education, Inc.23-36 Does the pattern of variances suggest Pro Fender’s managers have been making trade-offs? Explain. Lower quality direct materials would likely have contributed to the $6,600 unfavorable direct materials efficiency variance (the 146,000 square feet actually used was greater than the 140,000 square feet allowed for actual production of 20,000 fenders at the $1.10 direct materials standard cost per square foot). However, the total direct materials variance was $700 favorable (the $7,300 favorable direct materials cost variance minus the $6,600unfavorable direct materials efficiency variance), indicating that the savings from lower quality (less expensive) direct materials outweighed the less efficient usage of direct materials in production.

37. E23-19 © 2016 Pearson Education, Inc.23-37 Does the pattern of variances suggest Pro Fender’s managers have been making trade-offs? Explain. There may be trade-offs between the direct labor cost variance and the direct labor efficiency variance. Decisions made by the human resources manager may affect the direct labor efficiency variance for the production manager. Pro Fender’s human resources managers may have hired more skilled (higher paid) direct labor workers, leading to the $410 unfavorable direct labor cost variance (the $15 actual direct labor cost per direct labor hour was greater than the $14 direct labor standard cost per direct labor hour).

38. E23-19 © 2016 Pearson Education, Inc.23-38 Does the pattern of variances suggest Pro Fender’s managers have been making trade-offs? Explain. Hiring more skilled direct labor workers would likely have contributed to the $1,540 favorable direct labor efficiency variance (410 direct labor hours actually used was less than the 520 direct labor hours allowed for actual production of 20,000 fenders). However, the total direct labor variance was $1,130 favorable (the $1,540 favorable direct labor efficiency variance minus the $410 unfavorable direct labor cost variance), indicating that the more efficient use of direct labor in production outweighed the higher cost of hiring more skilled direct labor workers.

39. End of Chapter 23 © 2016 Pearson Education, Inc.23-39