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### ACC202 Week 4 E15-1 E15-2 E15-4 E15-5 P15-18 P15-19 P15-20

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Edmonds, T., Olds, P., McNair, F., and Tsay, B. (2012). Survey of Accounting (3rd ed.). New York, NY: McGraw-Hill Irwin. Complete the following exercises from Chapter 15 and submit them to the instructor by the end of Day 3. Exercises: 15-1, 15-2, 15-4, 15-5.

Complete the following problems from Chapter 15 and submit to the instructor by the end of Day 7. These problems will be graded for accuracy. Problems: 15-18, 15-19, 15-20.

E15-1 Indicate whether each of the following variances is favorable or unfavorable. The first one has been done as an example.

 Labor cost \$10.00 per hour \$9.60 per hour Labor usage 61,000 hours 61,800 hours Fixed cost spending \$400,000 \$390,000 Fixed cost per unit (volume) \$3.20 per unit \$3.16 per unit Sales volume 40,000 units 42,000 units Sales price \$3.60 per unit \$3.63 per unit Materials cost \$2.90 per pound \$3.00 per pound Materials usage 91,000 pounds 90,000 pounds

E15-2 Compute variances for the following items and indicate whether each variance is favorable (F) or unfavorable (U).

Required
Compute variances for the following items and indicate whether each variance is favorable (F) or
unfavorable (U).

 Budget Actual Sales price 650 525 Sales revenue 580,000 600,000 Cost of goods sold 385,000 360,000 Material purchases at 5,000 pounds 275,000 280,000 Materials usage 180,000 178,000 Production volume 950 900 Wages at 4,000 hours 60,000 58,700 Labor usage at \$16 per hour 96,000 97,000 Research and development expense 22,000 25,000 Selling and administrative expenses 49,000 40,000

Exercise 15-4 Determining sales and variable cost volume variances

Required
Use the information provided in Exercise 15-3.
a. Determine the sales and variable cost volume variances.
b. Classify the variances as favorable (F) or unfavorable (U).
c. Comment on the usefulness of the variances with respect to performance evaluation and identify
the member of the management team most likely to be responsible for these variances.
d. Determine the amount of fixed cost that will appear in the flexible budget.

Info from E15-3
 Sales price \$8.00 per unit Variable manufacturing cost 4.00 per unit Fixed manufacturing costs 3,000 total Fixed selling and administrative costs 1,000 total

Sexton planned to produce and sell 2,000 units. Actual production and sales amounted to 2,200 units.

E15-5 Use the standard price and cost data provided in Exercise 15-3. Assume that the actual sales
price is \$7.65 per unit and that the actual variable cost is \$4.25 per unit. The actual fixed
manufacturing cost is \$2,850, and the actual selling and administrative expenses are \$1,025.

Required
a. Determine the flexible budget variances.
b. Classify the variances as favorable (F) or unfavorable (U).
c. Provide another name for the fixed cost flexible budget variance.
d. Comment on the usefulness of the variances with respect to performance evaluation and
identify the member(s) of the management team who is (are) most likely to be responsible
for these variances.

Info from E15-3
 Sales price \$8.00 per unit Variable manufacturing cost 4.00 per unit Fixed manufacturing costs 3,000 total Fixed selling and administrative costs 1,000 total

Sexton planned to produce and sell 2,000 units. Actual production and sales amounted to 2,200 units.

P15-18 Todhunter Publications established the following standard price and costs for a hardcover picture book that the company produces.

 Standard price and variable costs Sales price 36.00 Materials 9.00 Labor 4.50 Overhead 6.30 General, selling, and administrative 7.20 Planned fixed costs: Manufacturing 135,000 General, selling, and administrative 54,000

Todhunter planned to make and sell 30,000 copies of the book.

Required
a. Prepare the pro forma income statement that would appear in the master budget.
b. Prepare flexible budget income statements, assuming volumes of 29,000 and 31,000 units.
c. Determine the sales and variable cost volume variances, assuming volume is actually 31,000
units.
d. Indicate whether the variances are favorable (F) or unfavorable (U).
e. Comment on how Todhunter could use the variances to evaluate performance.

P15-19 Use the standard price and cost data supplied in Problem 8-18A. Assume that Todhunter actually produced and sold 31,000 books. The actual sales price and costs incurred follow.

 Actual price and variable costs: Sales price 35.00 Materials 9.20 Labor 4.40 Overhead 6.35 General, selling, and administrative 7.00 Actual fixed costs: Manufacturing 120,000 General, selling, and administrative 60,000 Data from P15 - 18 Standard price and variable costs Sales price 36.00 Materials 9.00 Labor 4.50 Overhead 6.30 General, selling, and administrative 7.20 Planned fixed costs: Manufacturing 135,000 General, selling, and administrative 54,000

Required
a. Determine the flexible budget variances.
b. Indicate whether each variance is favorable (F) or unfavorable (U).
c. Identify the management position responsible for each variance. Explain what could have
caused the variance.

P15-20 Luke Chou, the president of Digitech Computer Services, needs your help. He wonders about the potential effects on the firm’s net income if he changes the service rate that the firm charges its customers. The following basic data pertain to fiscal year 2012.

 Standard Rate and Variable Costs Service rate per hour 80.00 Labor 40.00 Overhead 7.20 General, selling, and administrative 4.30 Expected fixed costs Facility repair 525,000 General, selling, and administrative 150,000

Required
a. Prepare the pro forma income statement that would appear in the master budget if the firm
expects to provide 30,000 hours of services in 2012.
b. A marketing consultant suggests to Mr. Chou that the service rate may affect the number of
service hours that the firm can achieve. According to the consultant’s analysis, if Digitech
charges customers \$75 per hour, the firm can achieve 38,000 hours of services. Prepare a flexible
budget using the consultant’s assumption.
c. The same consultant also suggests that if the firm raises its rate to \$85 per hour, the number of
service hours will decline to 25,000. Prepare a flexible budget using the new assumption.
d. Evaluate the three possible outcomes you determined in Requirements a, b, and c and recommend
a pricing strategy.