420C14

Exercise 14-25 Variance analysis, multiple products -- sales variances
Given:
Soda-King manufactures and sells 3 soft drinks: Kola, Limor, and Orlem. Budgeted and
actual results for 2011 are as follows:
Product
Kola
Limor
Orlem
Budget Information for 2011

Actual Information for 2011
Selling Price Variable Cost
Cartons
Selling Price Variable Cost
Cartons
per Carton
per Carton
Sold
per Carton
per Carton
Sold
$8.00
$5.00
480,000
$8.20
$5.50
467,500
$6.00
$3.80
720,000
$5.75
$3.75
852,500
$7.50
$5.50
1,200,000
$7.80
$5.60 1,430,000
1. Use the post method to calculate the individual product and total product variances
requested below. Calculate all variances in terms of contribution margin.
a. Compute the sales-price variance for August 2011.
b. Compute the sales-mix variance for August 2011.
c. Compute the sales-quantity variance for August 2011.
d. Compute the sales-volume variance for August 2011.
Budget for August 2011
Product
Selling Price
Variable Cost
CM
Sales Volume
Budgeted
in cartons
Sales Mix
Budgeted
per pound
per pound
per pound
Kola
$8.00
$5.00
$3.00
480,000
0.20
$1,440,000
$6,113,250
Limor
$6.00
$3.80
$2.20
720,000
0.30
$1,584,000
$5,424,000
($77,000)
Orlem
$7.50
$5.50
$2.00
1,200,000
0.50
$2,400,000
$689,250
$791,000
2,400,000
1.00
$5,424,000
Budgeted W/A CM per unit
CM
$2.2600
Actual for August 2011

Product
($24,750)
$689,250
$2.2600
$2.2600
Selling Price
Variable Cost
CM
Sales Volume
Actual
in cartons
Sales Mix
per pound
per pound
per pound
Kola
$8.20
$5.50
$2.70
Limor
$5.75
$3.75
Orlem
$7.80
$5.60
Actual
CM
467,500
0.17
$1,262,250
$2.00
852,500
0.31
$1,705,000
$2.20
1,430,000
0.52
$3,146,000
2,750,000
1.00
$6,113,250
Actual W/A CM per unit
$2.2230
$2.2230
$2.2230
Actual
Actual
Actual
AQ
Sales Price
AM
Variance
AQ
Actual
Actual
Budgeted
AM
Quantity
Sales Mix
CM per Unit
Quantity
Sales Mix
CM per Unit
Kola
Product
2,750,000
0.17
$2.70
$1,262,250
AP
($140,250)
2,750,000
0.170
$3.00
$1,402,500
Limor
2,750,000
0.31
$2.00
$1,705,000
($170,500)
2,750,000
0.310
$2.20
$1,875,500
Orlem
2,750,000
0.52
$2.20
$3,146,000
$286,000
2,750,000
0.520
$2.00
$2,860,000
$6,113,250
($24,750)
Sales Price
From P14-26
2,750,000
$2.2230
$6,113,250
27,500,000
0.10
$2.2230
$6,113,250
ATQ
AMS
ACM
(Expressed in CM)
BP
$6,138,000
Variance
(Expressed in CM)
Actual
Actual
Actual
Unfavorable
Total
Market
Contribution
($24,750)
Quantity
Share
Margin
AQ
AM
BP
$1,402,500
$1,875,500
2400000
$2,860,000
2750000
$6,138,000
2. What inferences can you draw from the variances computed in requirement #1?
The breakdown of the favorable sales-volume variance ($714,000 F) into a mix variance ($77,000 U)
and a quantity variance ($791,000 F) shows that the biggest contributor to the change in the income
of Soda-King is the 350,000 unit increase in sales. The sales price variance ($24,750 U) only partially
helps to explain this change in volume. For example, the selling price of Kola is raised and its volume
is reduced. However, the selling price of Orlem is raised, yet the volume of Orlem significantly increased.
Exercise 14-26 Market-share and market-size variances (continuation of 14-25).

Given:
Soda-King prepared the budget for 2011 assuming a 12% market share based on total sales
in the western region of the United States. The total soft drinks market was estimated to reach
sales of 20 million cartons in the region. However, actual total sales volume in the western
region was 27.5 million cartons. Calculate the market-share and market-size variances for SodaKing in 2011. Calculate all variances in terms of contribution margin. Use the post method.
Static Budget
Actual Market Size
Market
Actual Market Size
Market
Budgeted Market Size
Actual Market Share
Share
Budgeted Market Share
Size
Budgeted Average CM per Unit
Variance
Variance
27,500,000 X .10 X $2.260
27,500,000 X .12 X 2.260
$6,215,000
($1,243,000)
$7,458,000
Market-Share
20,000,000 X .12 X $2.260

$2,034,000
$5,424,000
Market-Size
Variance
Variance
Unfavorable
Favorable
Actual Market Share

(2,750,000/27,500,000) =
0.10
Sales-Quantity Variance

(2,400,000/20,000,000) =
$791,000
0.12
$791,000
Favorable
Total Sales Variance: Actual Sales $
- Budgeted Sales $
1. Sales Price
($24,750)
2. Sales Volume
$714,000
$689,250
($24,750)
($24,750)
1. Sales Mix
($77,000)
($77,000)
2. Sales-Quantity
$791,000
1. Market-Share
($1,243,000)
2. Market-Size
$2,034,000
$689,250
$689,250
$689,250
WRONG:
Static Budget
Actual Market Size
Market
Market
Actual Market Share
Size
Actual Market Share
Share
Variance
Variance
$1,695,000
$4,520,000
($904,000)
$5,424,000
$6,215,000
Market-Size
Actual sales
Market-Share
Variance
Variance
Unfavorable
Favorable
2,750,000
12% of Market
10% of Market
Actual market size
27,500,000
3,300,000
2,750,000
Actual Market Share
0.10
Budgeted sales
2,400,000
Budgeted market size
20,000,000
0.12
CORRECT:
Static Budget
Actual Market Size
Market
Actual Market Size
Market
Actual Market Share
Share
Size
Variance
Variance
$6,215,000
($1,243,000)
$7,458,000
$2,034,000
$5,424,000
Market-Share
Variance
Variance
Unfavorable
Favorable
Actual Market
27,500,000
27,500,000
Budgeted Market
20,000,000
20,000,000
Total Size Change
7,500,000
7,500,000
Market share
Budget
Co. Size Chg.

Budgeted CM/Unit
Mkt. Size Var.
Kola Only
Market-Size
0.12
0.10
900,000
750,000
$2.260
$2.260
$2,034,000
$1,695,000
Correct
Wrong
Actual
Caused by both size and share changes together.

($339,000) Market share too low
$339,000 Market size too low
-0.02 Decrease in market share
7,500,000 Increase in market size
-150000 Combined change
$2.260 Budgeted CM/Unit
($339,000) Added to both variances
Actual Market Size
Actual Market Size
Actual Market Size
Actual Market Size
Actual Market Size
Actual Market Share
Actual Market Share
Actual Market Share
Actual Market Share
Budgeted Mkt. Share
Actual input ratio
Actual input ratio
Actual input ratio
Budgeted input ratio
Actual Mix
Actual Mix
Budgeted Mix
Budgeted Mix
Budgeted Mix
Actual Cost
Budgeted Cost
Budgeted Cost
Budgeted Cost
Budgeted Cost
27,500,000
0.10
1
0.17
$2.70
27,500,000
0.10
1
0.17
$3.00
27,500,000
0.10
1
0.20
$3.00
27,500,000
0.10
1
0.20
$3.00
27,500,000
0.12
1
0.20
$3.00
$1,262,250
($140,250)
Price
$1,402,500
($247,500)
Mix
$1,650,000
$0
Yield
$1,650,000
($330,000)
Mkt. Share
$1,980,000
($140,250)
Price
($140,250)
Price
($247,500)
Efficiency
$210,000
Sales Quantity
($37,500)
($37,500)
($37,500)
Sales Volume
($24,750)
$714,000
$689,250
Sales
Mix
Actual
Budgeted
Budgeted
AQ
Sales
BM
Quantity
BQ
Budgeted
Budgeted
Budgeted
BM
Variance
Quantity
Sales Mix
CM per Unit
Quantity
Sales Mix
CM per Unit
BP
($247,500)
2,750,000
0.200
$3.00
$1,650,000
$210,000
2,400,000
0.20
$3.00
$1,440,000
$60,500
2,750,000
0.300
$2.20
$1,815,000
$231,000
2,400,000
0.30
$2.20
$1,584,000
$110,000
2,750,000
0.500
$2.00
$2,750,000
$350,000
2,400,000
0.50
$2.00
$2,400,000
$6,215,000
$791,000
Sales
From P14-26
2,400,000
$2.26
$5,424,000
$5,424,000
($77,000)
Sales
Mix
From P14-26
27,500,000
BP
Variance
$5,424,000
2,750,000
$2.26
$6,215,000
0.10
$2.26
$6,215,000
0.12
$2.26
AMS
BCM
Variance
BTQ
BMS
BCM
Favorable
Budgeted
Budgeted
Budgeted
Total
Market
Contribution
Quantity
Share
Margin
Variance
ATQ
Unfavorable
Actual
Actual
Actual
($77,000)
Total
Market
Contribution
Quantity
Share
Margin
Quantity
$791,000
20,000,000
BQ
BM
BP
Product
$1,440,000
Kola
($37,500)
($37,500)
$1,584,000
Limor
$291,500
$291,500
$2,400,000
$460,000
$460,000
$5,424,000
Orlem
Sales-Volume Variance
$714,000
$714,000
Favorable
($177,750)
d Market Size
Market Share
erage CM per Unit

X .12 X $2.260
d Market Size
Market Share
erage CM per Unit
d Market Size
Market Share
erage CM per Unit
Market Size
d Mkt. Share
Budgeted Mkt. Share
d input ratio

Budgeted Mix
eted Cost
Budgeted Cost
Mkt. Size
Mkt. Share
Yield
Mix
Price
20,000,000
0.12
1
0.20
$3.00
$540,000
Mkt. Size
$1,440,000
($177,750)
($177,750)
($177,750)
Quantity
($177,750)
Exercise 14-35 Direct materials efficiency, mix, and yield variances.

Given:
Nature's Best Nuts produces specialty nut products for the gourmet and natural foods market.
Its most popular product is Zesty Zingers, a mixture of roasted nuts that are seasoned with a
secret spice mixture, and sold in one-pound tins. The direct materials used in Zesty Zingers are
almonds, cashews, pistachios, and seasoning. For each batch of 100 tins, the budgeted quantities
and budgeted prices of direct materials are as follows:
Quantity
per 100
tin batch
Almonds
Cashews
Pistachios
Seasoning
Total
Input in
Cups
180
300
90
30
600
Input
Price per
Mix
cup
30%
$1.00
50%
$2.00
15%
$3.00
5%
$6.00
100%
Cost per
Batch
$180
$600
$270
$180
$1,230
$2.05 cost/cup
$12.30 cost/tin
6 cups = 1 tin
$12.30
Changing the standard mix of direct material quantities slightly does not significantly affect the
overall end product, particularly for the nuts. In addition, not all nuts added to production end
up in the finished product, as some nuts are rejected during inspection.
In the current period, Nature's Best made 2,500 tins of Zesty Zingers in 25 batches with the
following actual quantity, cost, and mix of inputs:
Quantity
Used for 25
batches -Actual
Actual
Total
Price per
2,500 tins
Cups
Mix
Price
cup
Almonds
5,280
33%
$5,280
$1.00
Cashews
7,520
47% $15,040
$2.00
Pistachios
2,720
17%
$8,160
$3.00
Seasoning
480
3%
$2,880
$6.00
Total
16,000
100% $31,360
$1.96 cost/cup
Allowed
15,000
15,000
$12.544 cost/tin
Required:
$12.54
6.40
1. What is the budgeted cost of direct materials for the 2,500 tins?
$30,750
2. Calculate the total direct materials efficiency variance.
$610
3. Why is the total direct materials price variance zero?
Actual prices per cup = Budgeted prices per
4. Calculate the total direct materials mix and yield variances.
($1,440) F Mix Var.
Almonds
Cashews
Pistachios
Seasoning
Total
Actual Quantity
Actual Mix
Actual Price
$5,280
$0
$15,040
$0
$8,160
$0
$2,880
$0
$31,360
$0
Price Var.
F
F
F
F
Actual Quantity
Actual Mix
Budgeted Price
$5,280
$480
$15,040
($960)
$8,160
$960
$2,880
($1,920)
$31,360
($1,440)
Mix Var.
($1,440)
U
F
U
F
F
F
Actual Quantity (16,000)

Budgeted Mix
Budgeted Price
$4,800
$16,000
$7,200
$4,800
$32,800
Almonds
Cashews
Pistachios
Seasoning
Total
$5,280
$15,040
$8,160
$2,880
$31,360
$780
$40
$1,410
($1,620)
$610
Efficiency Var.
Total Variance: Actual Cost
- Budgeted Costs
1. Price
$0
2. Efficiency
$0
$610
1. Mix
$610
$610
$610
U
($1,440) F
2. Yield
$2,050 U
$610
$610 U
What are the mix and yield variances telling you about the 2,500 tins produced this period?
The direct materials mix variances totaling $1,440 F indicates that the actual product mix uses
relatively more of less expensive ingredients than planned. In this case, the actual mix
contains slightly more almonds and pistachios, while using fewer cashews and substantially
less seasoning.
The direct materials yield variances totaling $2,050 U is the result of needing 16,000 cups of
input to produce 2,500 tins of output when the budgeted amount of input was only 15,000 cups
(600 X 25 = 15,000).
Are the variances large enough to investigate?
The direct materials yield variance is probably significant enough to be investigated. Inputs
were up (16,000 - 15,000)/15,000 = 6.7% in total.
The mix variance, although smaller, should be monitored since it is favorable largely due
to the use of less seasoning, which is probably considered an important element of the
product's appeal to customers. Note the cost savings by replacing relatively expensive
seasoning with almonds and pistachios.
Almonds
Cashews
Pistachios
Seasoning
Total
U
F
U
F
F
Added Data: Not in your text.

Actual Industry Size
25,000
Actual market share
0.10
Budgeted Industry Size
30,000
Budgeted market share
0.08
Mix
Variance
$480
($960)
$960
($1,920)
($1,440)
% of
Budget
10.00%
-6.00%
13.33%
-40.00%
-4.39%
Actual
Mix
33%
47%
17%
3%
100%
Budgeted
Price Per
Mix
Cup
30%
$1.00
50%
$2.00
15%
$3.00
5%
$6.00
100%
Tins
2,500
2,400
Actual Market Size
Actual Market Size
Actual Market Size
Actual Market Size
Actual Market Share
Actual Market Share
Actual Market Share
Actual Market Share
Actual input ratio
Actual input ratio
Actual input ratio
Almonds
Cashews
Pistachios
Actual Mix
Actual Mix
Budgeted Mix
Budgeted Mix
Actual Cost
Budgeted Cost
Budgeted Cost
Budgeted Cost
25,000
0.10
6.40
33%
$1.00
$5,280
25,000
0.10
6.40
33%
$1.00
$5,280
25,000
0.10
6.40
30%
$1.00
$4,800
25,000
0.10
6
30%
$1.00
$4,500
$0
$480
$300
Actual Market Size
Actual Market Size
Actual Market Size
Actual Market Size
Actual Market Share
Actual Market Share
Actual Market Share
Actual Market Share
Actual input ratio
Actual input ratio
Actual input ratio
Actual Mix
Actual Mix
Budgeted Mix
Budgeted Mix
Actual Cost
Budgeted Cost
Budgeted Cost
Budgeted Cost
25,000
0.10
6.40
47%
$2.00
$15,040
25,000
0.10
6.40
47%
$2.00
$15,040
25,000
0.10
6.40
50%
$2.00
$16,000
25,000
0.10
6
50%
$2.00
$15,000
$0
Price
($960)
Mix
$1,000
Yield
Actual Market Size
Actual Market Size
Actual Market Size
Actual Market Size
Actual Market Share
Actual Market Share
Actual Market Share
Actual Market Share
Actual input ratio
Actual input ratio
Actual input ratio
Actual Mix
Actual Mix
Budgeted Mix
Budgeted Mix
Actual Cost
Budgeted Cost
Budgeted Cost
Budgeted Cost
25,000
0.10
6.40
17%
$3.00
$8,160
25,000
0.10
6.40
17%
$3.00
$8,160
25,000
0.10
6.40
15%
$3.00
$7,200
25,000
0.10
6
15%
$3.00
$6,750
$0
Price
$960
Mix
$450
Yield
Actual Market Size
Actual Market Size
Actual Market Size
Actual Market Size
Actual Market Share
Actual Market Share
Actual Market Share
Actual Market Share
Actual input ratio
Actual input ratio
Actual input ratio
Actual Mix
Actual Mix
Budgeted Mix
Budgeted Mix
Actual Cost
Budgeted Cost
Budgeted Cost
Budgeted Cost
Seasoning
25,000
0.10
6.40
3%
$6.00
$2,880
25,000
0.10
6.40
3%
$6.00
$2,880
25,000
0.10
6.40
5%
$6.00
$4,800
25,000
0.10
6
5%
$6.00
$4,500
Total
$31,360
$0
Price
$0
$31,360
($1,920)
Mix
($1,440)
$32,800
$300
Yield
$2,050
$30,750
Actual Market Size

Actual Market Share
Budgeted Aver. CM per Unit
Tins
25,000
Tins
Text Total Method
0.10
$12.30
$30,750
6 cups = 1 tin
U
er cup = Budgeted prices per cup
$2,050 U Yield Var.
Actual Quantity (16,000)

Budgeted Mix
Budgeted Price
$300
$1,000
$450
$300
$2,050
Yield Var.
$2,050
U
U
U
U
U
U
Budgeted Quantity
15,000
Budgeted Mix
Budgeted Price
$4,500 0.06666667
$15,000 0.06666667 1.066667 0.06666667
$6,750 0.06666667
$4,500 0.06666667
$30,750 0.06666667
$2,050 U
$2,050 U
U
U
U
F
U
$4,500
$15,000
$6,750
$4,500
$30,750
Efficiency Var.
U
U
ct mix uses
$2,050
or
$2,050
15,000 cups
2,500
2,666.667
166.667
$12.30
$2,050.00
tins (planned output)

output based on input
lost output
cost/tin
extra cost
ual Market Size
Actual Market Size
ual Market Share
Budgeted Mkt. Share
Budgeted Mkt. Share
geted input ratio
Mkt. Size
Mkt. Share
Yield
udgeted Cost
$900
Budgeted Mix
Budgeted Mix
Budgeted Cost
Budgeted Cost
25,000
0.08
6
30%
$1.00
$3,600
30,000
0.08
6
30%
$1.00
$4,320
Static Budget
($720)
Mix
Price
$960
$960
ual Market Size
Actual Market Size
ual Market Share
Budgeted Mkt. Share
Budgeted Mkt. Share
geted input ratio
Budgeted Mix
Budgeted Mix
Budgeted Cost
Budgeted Cost
25,000
0.08
6
50%
$2.00
$12,000
30,000
0.08
6
50%
$2.00
$14,400
udgeted Cost
$3,000
Mkt. Share
($2,400)
Mkt. Size
$640
ual Market Size
Actual Market Size
ual Market Share
Budgeted Mkt. Share
Budgeted Mkt. Share
geted input ratio
Budgeted Mix
Budgeted Mix
Budgeted Cost
Budgeted Cost
25,000
0.08
6
15%
$3.00
$5,400
30,000
0.08
6
15%
$3.00
$6,480
udgeted Cost
$1,350
Mkt. Share
($1,080)
Mkt. Size
Actual Market Size
ual Market Share
Budgeted Mkt. Share
Budgeted Mkt. Share
geted input ratio
$900
Mkt. Share
$6,150
Mkt. Size
Mkt. Share
Yield
Mix
Price
$1,680
ual Market Size
udgeted Cost
Mkt. Size
Mkt. Share
Yield
Mix
Price
Mkt. Size
Mkt. Share
Yield
Mix
Price
Budgeted Mix
Budgeted Mix
Budgeted Cost
Budgeted Cost
25,000
0.08
6
5%
$6.00
$3,600
30,000
0.08
6
5%
$6.00
$4,320
($1,440)
$29,520
$1,840
$24,600
($720)
Mkt. Size
($4,920)
ual Market Size
Actual Market Size
ual Market Share
Budgeted Mkt. Share
ed Aver. CM per Unit
Budgeted Aver. CM/Unit
Budgeted Aver. CM/Unit
25,000
30,000
$6,150
Market
0.08
$12.30
$24,600
($4,920)
Market
Share
Size
Variance
Variance
0.08
$12.30
$29,520
Exercise 14-36 Direct labor variances: price, efficiency, mix, and yield variances.
Given:
Trevor Joseph employs two workers in his guitar-making business. The first worker, George, has
been making guitars for 20 years and is paid $30 per hour. The second worker, Earl, is not as
experienced, and is paid $20 per hour. One guitar requires, on average, 10 hours of labor. The
budgeted direct labor quantities and prices for one guitar are as follows:
Worker
George
Earl
Total
Hours
6
4
10
Input
Mix
60%
40%
100%
Budgeted
Hourly Cost Per
Pay
Guitar
$30
$180
$20
$80
$260
$26 Budgeted weighted average cost per hour
That is, each guitar is budgeted to require 10 hours of direct labor, comprised of 60% of George's
labor and 40% of Earl's labor. Sometimes Earl works more hours on a particular guitar and George
less, or vice versa, with no obvious change in the quality or function of the guitar.
During the month of August, Joseph manufactures 25 guitars. Actual direct labor costs are as
follows:
Actual hrs.
Total
Actual
for 25
Actual
Labor Price per
Worker
guitars
Mix
Cost
Hour
George
145
57.31%
$4,350
$30.00
Earl
108
42.69%
$2,160
$20.00
Total
253
100.00%
$6,510
$25.731 Actual weighted average cost per hour
$260.40 Actual weighted average cost guitars
Required:
1. What is the budgeted cost of direct labor for the 25 guitars?
$6,500
$6,500
2. Calculate the total direct labor price and efficiency variance.
$0
Price Var.
Why is the total direct labor price variance zero?
Actual hourly rates = Budgeted hourly rates
3. For the 25 guitars produced, what is the total actual amount of
direct labor used?
253 hours
What is the actual direct labor input mix percentage?
See table above.
What is the budgeted amount of George's and Earl's labor that
should have been used for the 25 guitars?
250 hours
4. Calculate the total direct labor mix and yield variances.
($68) F Mix Var.
How do these numbers relate to the total direct labor efficiency
variance?
$10 U Efficiency is the sum of the mix
George
Earl
Total
George
Actual Quantity (Hrs.)

Actual Mix
Actual Price
$4,350
$0 F
$2,160
$0 F
$6,510
$0 F
Price Var.

Actual Mix
Budgeted Price
$4,350
($204) F
$2,160
$136 U
$6,510
($68) F
Mix Var.
($68)
F
$4,350

Budgeted Mix
Budgeted Price
$4,554
$2,024
$6,578
($150)
Earl
Total
$2,160
$6,510
$160
$10
Efficiency Var.
Total Variance: Actual Cost

1. Price
2. Efficiency Var.
- Budgeted Costs
$0
$10
$10
$10
$0
$10
1. Mix
($68)
2. Yield
$78
$10
$10
What are the mix and yield variances telling you about the 25 guitars produced this period?
The favorable mix variance arises from using more of the cheaper laborer (Earl) and less of
the more expensive laborer (George) than the budgeted mix.
The yield variance indicates that the guitars required 1.2% more total inputs (253 hours)
than expected (250 hours) for the production of 25 guitars. It is likely that Earl, who is less
experienced, worked more slowly than George, which caused the unfavorable yield
variance.
Both variances are relatively small and probably within acceptable limits. However, the
owner of the company, Trevor Joseph should be careful that using more of the cheaper
labor does not reduce the quality of the guitar or the perceived quality of the guitar by
customers or potential customers.
hted average cost per hour
and George
d average cost per hour

d average cost guitars
$10
U Efficiency Var.
tes = Budgeted hourly rates
$78 U Yield Var.
U Efficiency is the sum of the mix and yield variances.
253
Budgeted Mix
Budgeted Price
$54
$24
$78
Yield Var.
$78
$78
$78
F
U
U
U
250
3
0.012
Budgeted Quantity (Hrs.)
Budgeted Mix
Budgeted Price
1.012
$4,500
0.012
$54.00
$2,000
0.012
$6,500
0.012
U
U
U
$4,500
$2,000
$6,500
Efficiency Var.
U
U
1.20%
$78
Unfav.
Alternative calculations of yield variance

25.30 output based on actual input
25.00 guitars produced
0.30 lost output
$260.00 budgeted cost per guitar
$78.00 extra cost
Yield Variance --- Unfavorable
Exercise 14-19 Cost allocation to divisions

Given:
Lenzig Corporation has three divisions: Fibers, Paper, and Pulp. Lenzig's new controller, Ari
Bardem, is reviewing the allocation of fixed corporate-overhead costs to the three divisions.
He is presented with the following information for each division for 2012:
Revenue
Direct manufacturing costs
Divisional administrative costs
Division margin
Div. margin % (Div. margin / Rev.)
Number of employees
Floor space (square feet)
Pulp
$8,500,000
4,100,000
2,000,000
$2,400,000
28.24%
350
35,000
Paper
$17,500,000
8,600,000
1,800,000
$7,100,000
40.57%
250
24,000
Fibers
$24,000,000
11,300,000
3,200,000
$9,500,000
39.58%
400
66,000
Total
$50,000,000
24,000,000
7,000,000
$19,000,000
38.00%
1,000
125,000
Until now, Lenzig Corporation has allocated fixed corporate-overhead costs to the divisions
based on of division margins. Bardem asks for a list of costs that comprise fixed corporate
overhead and suggests the following new allocation bases:
Fixed Corporate Overhead Cost Category
Human resource management costs
Facility costs
Corporate administrative costs
Total Fixed Corporate Overhead Costs
Costs
Suggested Allocation Bases
Application rate
$1,800,000 Number of employees

2,700,000 Floor space (square feet)
4,500,000 Divisional administrative costs
$9,000,000
$1,800
$21.60
$0.642857
Required:
1. Allocate 2012 fixed corporate-overhead costs to the 3 divisions using division margin as
the allocation base. What is each division's operating margin % (division margin minus
allocated fixed corporate-overhead costs as a percentage of revenue)?
Allocated corporate-overhead costs
Pulp
$1,136,842
Paper
$3,363,158
Fibers
$4,500,000
Total
$9,000,000
Division margin
Division operating margin
Division operating margin percentage
Pulp
$2,400,000
1,136,842
$1,263,158
14.86%
Paper
$7,100,000
3,363,158
$3,736,842
21.35%
Fibers
$9,500,000
4,500,000
$5,000,000
20.83%
Total
$19,000,000
9,000,000
$10,000,000
20.00%
2. Allocate 2012 fixed costs using the allocation bases suggested by Bardem. What is each
division's operating margin percentage under the new allocation scheme?
Human resource mgmt. costs

Facility costs
Corporate administrative costs
Total Indirect FOH Costs
Pulp
$630,000
$756,000
1,285,714
$2,671,714
Pulp
Paper
$450,000
$518,400
1,157,143
$2,125,543
Paper
Fibers
$720,000
$1,425,600
2,057,143
$4,202,743
Fibers
Total
$1,800,000
2,700,000
4,500,000
$9,000,000
Total
Division margin
Division operating margin
Division operating margin percentage
$2,400,000
2,671,714
($271,714)
-3.20%
$7,100,000
2,125,543
$4,974,457
28.43%
$9,500,000
$19,000,000
4,202,743
9,000,000
$5,297,257
$10,000,000
22.07%
20.00%
3. Compare and discuss the results of requirements 1 and 2. If division performance is

linked to operating margin %, which division would be most receptive to the new
allocation scheme? Which division would be the least receptive? Why?
When corporate overhead is allocated to the divisions on the basis of division margins
(requirement 1), each division appears profitable each having positive operating margin.
The Paper division appears the most profitable having the highest operating margin % while
the Pulp division appears least profitable.
When Bardem's suggested bases are used to allocate fixed corporate-overhead costs
(requirement 2), the Pulp division appears unprofitable having a negative operating %.
Paper appears to be the most profitable -- significantly more profitable than the Fibers
division.
4. Which allocation scheme should Lenzig Corporation use? Why? How might Bardem
overcome any objections that may arise from the divisions?
The new approach is preferable because the indirect FOH costs are divided into three
homogeneous cost pools with distinctive cost drivers. These drivers are used to allocate
the cost pool costs based on cause-and-effect relationships. The old method used division
margins which are the result of cost relationships not the cause of them.
The cost drivers used are based on logical cause and effect relationships. For example:
a. HR costs are allocated using the number of employees in each division because the
costs for recruitment, training, etc., are mostly related to the number of employees
in each division.
b. Facility costs are mostly incurred on the basis of space occupied by each division.
c. Corporate administrative costs are allocated on the basis of divisional administrative
costs because these costs are incurred to provide support to divisional administrations.
To overcome objections from the divisions, Bardem may initially choose not to allocate
corporate overhead to divisions when evaluating performance. He could start by sharing
the results with the divisions, and giving themparticularly the Pulp divisionadequate
time to figure out how to reduce their share of cost drivers. He should also develop
benchmarks by comparing the consumption of corporate resources to competitors and
other industry standards.
Exercise 14-22
Given:
Figure Four is a distributor of pharmaceutical products. Its ABC system has 5 activities.
Activity Area:
Order processing
Line-item ordering
Store deliveries
Carton deliveries
Shelf-stocking
Cost Driver Rate in 2012

$40 per order
$3 per line item
$50 per store delivery
$1 per carton
$16 per stocking-hour
Rick Flair, the controller of Figure Four, wants to use this ABC system to examine individual
customer profitability within each distribution market. He focuses first on the Ma and Pa
single-store distribution market. Two customers are used to exemplify the insights available
with the ABC approach. Data pertaining to these two customers in August 2012 are as
follows:
Charleston
Chapel Hill
Pharmacy
Pharmacy
Total orders
13
10
Average line items per order
9
18
Total store deliveries
7
10
Average cartons shipped per store delivery
22
20
Average hours of shelf stocking/store delivery
0
0.5
Average revenue per delivery
$2,400
$1,800
Average cost of goods sold per delivery
$2,100
$1,650
Required:
1. Use the ABC information to compute the operating income of each customer in August
2012. Comment on the results and what, if anything, Flair should do.
Revenue
Less Cost of Goods Sold
Gross Profit
Less Operating Costs
Driver Rate
Order processing
$40
Line-item ordering
$3
Store deliveries
$50
Carton deliveries
$1
Shelf-stocking
$16
Total Operating Costs
Operating Income
12.50%
per order
per line item
per store delivery
per carton
per stocking-hour
Charleston
Pharmacy
$16,800
14,700
$2,100
Chapel Hill
Pharmacy
$18,000
16,500
$1,500
$520
351
350
154
0
$1,375
$725
$400
540
500
200
80
$1,720
($220)
8.33%
Chapel Hill Pharmacy has a lower gross margin % (8.33%) than Charleston (12.5%) and
it consumes more resources (operating costs) to obtain this lower margin.
2. Flair ranks the individual customers in the Ma and Pa single-store distribution market on
the basis of monthly operating income. The cumulative operating income of the top 20%
of customers is $55,680. Figure Four reports negative operating income of $21,247 for the
bottom 40% of its customers.

Make four recommendations that you think Figure Four should consider
in light of this new customer-profitability information.
1.
2.
3.
4.
5.
Pay increased attention to profitable customers -- dont want to loose them

Reduce the activity cost driver rates -- make value-added activities more efficient
Reduce or eliminate non-value added activities
Eliminate unprofitable customers who cannot be made profitable
Pay bonuses based on customer operating income.
Exercise 14-34
Given:
Debbie's Delight, Inc., operates a chain of cookie stores. Budgeted and
actual operating data of its three Chicago stores for August 2009 are as
follows:
Budget for August 2009
Chocolate chip
Oatmeal raisin
Coconut
White chocolate
Macadamia nut
Total
Selling Price
Variable Cost
CM
Sales Volume
Budgeted
Budgeted
per pound
per pound
per pound
in pounds
Sales Mix
TCM
4.50
2.50
2.00
45,000
0.45
90,000
5.00
2.70
2.30
25,000
0.25
57,500
5.50
2.90
2.60
10,000
0.10
26,000
6.00
3.00
3.00
5,000
0.05
15,000
6.50
3.40
3.10
15,000
0.15
46,500
100,000
1.00
235,000
Budgeted W/A CM per unit
$2.35
Actual for August 2009
Chocolate chip
Oatmeal raisin
Coconut
White chocolate
Macadamia nut
Selling Price
Variable Cost
CM
Sales Volume
Actual
Actual
per pound
per pound
per pound
in pounds
Sales Mix
TCM
4.50
2.60
1.90
57,600
0.48
109,440
5.20
2.90
2.30
18,000
0.15
41,400
5.50
2.80
2.70
9,600
0.08
25,920
6.00
3.40
2.60
13,200
0.11
34,320
7.00
4.00
3.00
21,600
0.18
64,800
120,000
1.00
275,880
Debbie's Delight focuses on CM in its variance analysis.
Actual W/A CM per unit
$2.30
Required:
1. Compute the total sales-volume variance for August 2009.
2. Compute the total sales-mix variance for August 2009.
3. Compute the total sales-quantity variance for August 2009.
Actual Quantity Sold
Sales Price
Actual Sales Mix
(in CM)
Actual Sales Mix
Actual CM per Unit
Chocolate chip
Oatmeal raisin
Coconut
White chocolate
Macadamia nut
Variance
Budgeted CM per Unit
120,000 X .48 X $1.90 =
$109,440
120,000 X .15 X $2.30 =
$41,400
$0
120,000 X .15 X $2.30 =
120,000 X .08 X $2.70 =
$25,920
$960
120,000 X .08 X $2.60 =
120,000 X .11 X $2.60 =
$34,320
($5,280)
120,000 X .11 X $3.00 =
$64,800
($2,160)
120,000 X .18 X $3.10 =
$275,880
($12,240)
120,000 X .18 X $3.00 =
$2.30
($5,760)
120,000 X .48 X $2.00 =
Sales Price
(in CM)
Variance
Unfavorable
(SP - VC)
4. Comment on your results in requirements 1, 2, 3.

Debbie's Delight shows a favorable sales-quantity variance because it sold more cookies in total (120,000#'s)
than was budgeted (100,000#'s).
Together with the higher quantities, Debbie's also sold more of the high-contribution margin white chocolate
and macadamia nut cookies relative to the budgeted mix -- hence, Debbie's also showed a favorable total
sales-mix variances.
($2.40 - $2.35)
The Sales Price (Expressed in CM) Variance which is unfavorable reflects the fact that differences in sales price
and variable cost from budgeted values decreased income by $12,240.
Exercise 14-35
Given:
Debbie's Delight expects to attains a 10% market share based on total sales of the Chicago market. The total Chicago
market is expected to be 1,000,000 pounds in sales volume for August 2009. The actual total Chicago market for
August 2009 was 960,000 pounds in sales volume.
Required:
Compute the market-share and market-size variances for Debbie's Delight in August 2009. Report all
variances in CM terms. Comment on the results.
Actual Market Size
Market
Actual Market Size
Actual Market Share
Share
Variance
960,000 X .125 X $2.35

$282,000
Actual Market Share
(120,000/960,000) = .125
0.125
$56,400
Market-Share
Variance
Favorable
960,000 X .10 X 2.35

$225,600
$47,000
$47,000
Favorable
By increasing its actual market share from the 10% budgeted to the actual
12.5%, Debbie's Delight has a favorable market-share variance of $56,400.
There is a smaller offsetting unfavorable market-size variance of $9,400 due
to the 40,000 unit decline in the Chicago market (from 1,000,000 budgeted
to an actual of 960,000).
Overview of 14-34 and 14-35:
Sales-Mix Variance
$6,120 F
$53,120
$53,120 F
$47,000 F
Market-Share Variance
$56,400 F
Market-Size Varianc
Static Budget
ual Quantity Sold
ctual Sales Mix
geted CM per Unit
Sales
Sales
Budget Quantity Sold
Mix
Budgeted Sales Mix
Quantity
Budgeted Sales Mix
Variance
Variance
$115,200
$7,200
120,000 X .45 X $2.00 =
$108,000
$18,000
100,000 X .45 X $2.00 =
$41,400
($27,600)
120,000 X .25 X $2.30 =
$69,000
$11,500
100,000 X .25 X $2.30 =
$24,960
($6,240)
120,000 X .10 X $2.60 =
$31,200
$5,200
100,000 X .10 X $2.60 =
$39,600
$21,600
120,000 X .05 X $3.00 =
$18,000
$3,000
100,000 X .05 X $3.00 =
$66,960
$11,160
120,000 X .15 X $3.10 =
$55,800
$9,300
100,000 X .15 X $3.10 =
$288,120
$6,120
$282,000
$47,000
$2.40
Sales
$2.35
Mix
Sales
Quantity
Variance
Variance
Favorable
Favorable
$53,120
$53,120
Favorable
es in total (120,000#'s)
argin white chocolate

d a favorable total
differences in sales price
o market. The total Chicago

al Chicago market for
tual Market Size
eted Market Share
d Average CM per Unit
Static Budget
Market
Size
Variance
000 X .10 X 2.35
Quantity Variance
($9,400)
Market-Size
Variance
Unfavorable
1,000,000 X .10 X $2.35

$235,000
(100,000/1,000,000) = .10
0.10
Market-Size Variance
$9,400 U
get Quantity Sold
dgeted Sales Mix
geted CM per Unit

$90,000
$57,500
$26,000
$15,000
$46,500
$235,000
$2.35
Exercise 14-37
Given:
PDS Manufacturing makes wooden furniture. One of their products is a wooden dresser. The exterior and some of the
shelves are made of oak, a high quality wood, but the interior drawers are made of pine, a less expensive wood. The
budgeted direct materials quantities and prices for one dresser are:
Quantity
Type of Wood
Oak
Pine
Total
Board Feet
8
12
20
Budgeted
Mix
0.40
0.60
Price Per
Unit of
Input
$6.00
2.00
Cost For
One
Dresser
$48
24
$72
$3.60
That is, each dresser is budgeted to use 20 board feet of wood, comprised of 40% oak and 60% pine, although
sometimes more pine is used in place of oak with no obvious change in the quality or function of the dresser.
During the month of May, PDS manufactures 3,000 dressers. Actual direct materials costs are:
Board Feet
Oak
Pine
23,180
37,820
61,000
Actual Mix Actual Cost

0.38
$141,398
0.62
$68,076
$209,474
Per Unit Cost
$6.10
$1.80
$3.43
Required:
1. What is the budgeted cost of direct materials for 3,000 dressers?
3,000 X 20 X $3.60 = $216,000
60,000
2. Calculate the total direct materials price and efficiency variances.

See below.
DM Price Variance
DM Efficiency Variance
($5,246) Favorable
($1,280) Favorable
3. For the 3,000 dressers, what is the total actual amount of oak and pine used?
See below.
61,000
What is the actual DM input mix percentage?

Board Feet
Oak
Pine
23,180
37,820
61,000
Actual Mix Actual Cost

0.38 $141,398
0.62
$68,076
$209,474
What is the budgeted amount of oak and pine that should have been used for the 3,000 dressers?
Oak
Pine
3,000 X 20 X .40 =
3,000 X 20 X .60 =
24,000
36,000
60,000
4. Calculate the total direct materials mix and yield variances. How do these numbers relate to the
total direct materials eficiency variance? What do these variances tell you?
Actual Quantity
Oak
Pine
Actual Quantity
Actual Mix
Price
Actual Mix
Actual Price
Variance
Budgeted Price
61,000 X .38 X $6.10 =

61,000 X .62 X $1.80 =
$141,398
$2,318
61,000 X .38 X $6 =
$68,076
(7,564)
61,000 X .62 X $2 =
$209,474
($5,246)
Price
Favorable
Price Variance:
The net $5,246 favorable price variance results from a decrease in the price per board
foot of pine of sufficient magnitude to offset and unfavorable price increase per board
foot of oak.
Mix Variance:
The favorable mix variance arises from using more of the cheaper pine (and less oak)
than the budgeted mix.
Yield Variance:
The yield variance indicates that the dressers required more total inputs (61,000 b.f.)
than expected (60,000 b.f.) for the production of 3,000 dressers.
Both variances are relatively small and probably within tolerable limits.
PDS should investigate whether substituting the cheaper pine for the more expensive oak caused the
unfavorable yield variance.
PDS should also be careful that using more of the cheaper pine does not reduce the quality of the dresser
or how the customers perceive it.
e exterior and some of the

ss expensive wood. The
0% pine, although
n of the dresser.
000 dressers?
relate to the
ctual Quantity
Actual Quantity
Actual Mix
udgeted Price
$139,080
Budgeted Mix
Yield
Budgeted Mix
Variance
Budgeted Price
Variance
Budgeted Price
($7,320)
61,000 X .40 X $6 =
$75,640
2,440
61,000 X .60 X $2 =
$214,720
($4,880)
in the price per board

ce increase per board
er pine (and less oak)
al inputs (61,000 b.f.)
ve oak caused the
e quality of the dresser
Budgeted Quantity
Mix
$146,400
$2,400
60,000 X .40 X $6 =
$73,200
1,200
60,000 X .60 X $2 =
$219,600
$3,600
Mix
Variance
Yield
($1,280)
Unfavorable
($4,880)
Efficiency
$3,600
Favorable
Favorable
($1,280)
Alternative Calculation of Yield Variance
20.3333333
20.0000000
0.3333333
$3.60
$1.2000000
3,000
$3,600
Actual BF of input per dresser produced

Budgeted BF of input per dresser produced
Extra BF of input per dresser produced
W/A budgeted cost per BF of input
Extra cost per dresser produced
Dressers produced
Unfavorable Yield Variance
0.0500000
0.0491803
0.0008197
$72
$0.0590164
61,000
$3,600
Budgeted: Dressers per BF of input

Actual: Dressers per BF of input
Decreased dressers per BF of input
W/A budgeted cost per dresser
Extra cost per BF of input
BF of input
udgeted Quantity
Budgeted Mix
Budgeted Price
$144,000
72,000
$216,000
Exercise 14-31
Given:
Sherriton's loyalty program consists of three different customer loyalty levels.
Bronze Card
Available to all new customers.
Complimentary bottle of wine/night
$20 Restaurant coupons/night
10% discount off the nightly rate
Silver upgrade
After 20 night's "stay and pay"
Complimentary bottle of wine/night
Gold upgrade
After 50 night's "stay and pay"
Complimentary bottle of champagne/night
The average full price for one night's stay
Other variable cost per night stayed
Total fixed costs for the chain are
Sherriton operates:
$5 cost to company
$10 cost to company
10% nightly discount
$5 cost to company
$15 cost to company
$20 cost to company

$20 cost to company
$200
$65
$140,580,000
10
500
365
80%
hotels
rooms per hotel
days per year
average occupancy rate
Loyalty program characteristics:

Customer Type
# of Customers
Average # of Nights
Gold
2,430
60
Silver
8,340
35
80,300
10
219,000
Bronze
No Program
Required:
1. Calculate the program CM for each of the customer types. Which is most
profitable? Which is the least profitable? Do not allocate fixed costs to
individual rooms or specific loyalty programs.
2. Prepare an income statement for Sherriton for the year ended 12/31/2006?
Gold
Revenues
1st 20 nights
21st to 50th night
51st to 60th night
Variable Costs
VC of hotel room
Wine
Champagne
Restaurant costs
$8,748,000
11,664,000
3,402,000
$9,477,000
607,500
486,000
$23,814,000
1st 20 nights
21st to 50th night
51st to 60th night
Contribution margin
Silver
Revenues
1st 20 nights
21st to 35th night
Variable Costs
VC of hotel room
Wine
Restaurant costs
1st 20 nights
21st to 35th night
Contribution margin
Bronze
Revenues
1st 10 nights
Variable Costs
VC of hotel room
Wine
Restaurant costs
Contribution margin
486,000
1,093,500
486,000
$30,024,000
20,016,000
$50,040,000
$18,973,500
1,459,500
1,668,000
1,876,500
23,977,500
$26,062,500
$144,540,000
$52,195,000
4,015,000
8,030,000
No Program
Revenues
VC of Hotel room
Contribution margin
Summary
Revenue
Variable Costs
Contribution margin
Fixed Costs
Operating Income
Contribution margin %
12,636,000
$11,178,000
64,240,000
$80,300,000
$43,800,000
14,235,000
$29,565,000
Gold
$23,814,000
12,636,000
$11,178,000
46.939%
Lowest
Silver
$50,040,000
23,977,500
$26,062,500
Bronze
$144,540,000
64,240,000
$80,300,000
52.083%
55.556%
3. What is the average room rate per night? What are the average VC per night
inclusive of the loyalty program?
Total nights
Gold
145,800
Silver
291,900
Bronze
803,000
No program
219,000
Total
1,459,700
Total revenues
$262,194,000
No Program
$43,800,000
14,235,000
$29,565,000
67.500%
Highest
Average room rate per night

Total variable costs
Average VC per night
$179.62
$115,088,500
$78.84
4. Explain what drives the profitability (or lack thereof) of Sherriton's loyalty
program.
Loyalty programs aim to generate profitable repeat business.
Given the low level of variable costs to room rates, there is considerable
cushion available for Sherriton to offer high inducements for frequent stayers.
Added questions:
5. Does it appear that Sherriton's loyalty program is working?
Sherriton operates:
10
500
365
80%
hotels
rooms per hotel
days per year
average occupancy rate
Loyalty program characteristics:

Customer Type
Average # of Nights
2,430
60
Silver
8,340
35
80,300
10
219,000
Pre-Plan
1,825,000
1,460,000
0.80000
$135
$197,100,000
Post-Plan
1,825,000
1,459,700
0.79984
$100.78
$147,105,500
$49,994,500
Bronze
No Program
Total rooms available for rent

Rooms rented
Average occupancy rate
Average CM per rental
Total CM
Decrease in TCM post-plan
# of Customers
Gold
Total Rentals
145,800
291,900
803,000
219,000
1,459,700
No!
6. How might your answer to question 5 be improved with some additional data?
1. Was there a change in the industry market size? More travel? Fewer/More available rooms?
2. What extra revenue was generated because of the restaurant coupons.
3. A loyalty plan might work well for some hotels or geographical areas but not in others.
Total
$262,194,000
115,088,500
$147,105,500
140,580,000
$6,525,500
2
Exercise 14-37
Given:
Greenwood, Inc., processes apples into applesauce and apple butter. Greenwood's applesauce is made with a blend
of Tolman, Golden Delicious, and Ribston apples. Budgeted and actual costs to produce 150,000 pounds of applesauce
in November 2006 are as follows:
Actual
Quantity
(Pounds)
72,000
180,000
108,000
360,000
Actual
Mix
0.20
0.50
0.30
1.00
Actual
Price
$0.35
$0.29
$0.22
Flexible
Actual
Budgeted
Cost
Quantity
$25,200
52,500
52,200
210,000
23,760
87,500
$101,160
350,000
Applesauce
Tohlman
Golden Delicious
Ribston
Total
Required:
1. Calculate the total DM price and efficiency variance for November 2006.
2. Calculate the total direct materials mix and yield variances for November 2006.
3. Comment on your results in requirement 1 and 2.
Actual Quantity
Tohlman
Golden Delicious
Ribston
Budgeted
Mix
0.15
0.60
0.25
1.00
Actual Quantity
Actual Mix
Price
Actual Mix
Actual Price
Variance
Budgeted Price
360,000 X .20 X $.35 =
$25,200
($3,600)
360,000 X .20 X $.40 =
360,000 X .50 X $.29 =
$52,200
(1,800)
360,000 X .50 X $.30 =
360,000 X .30 X $.22 =
$23,760
2,160
360,000 X .30 X $.20 =
$101,160
($3,240)
Price
Favorable
Greenwood paid less per pound for Tolman and Golden Delicious apples than budgeted and, so it had a favorable direct
materials price variance of $3,240 (F).
It also had an unfavorable efficiency variance of $2,900. Greenwood would need to evaluate if these were unrelated
events or if the lower price resulted from the purchase of apples of poorer quality that affected efficiency. The net effect
in this case from a cost standpoint was favorable -- the savings in price being greater than the loss in efficiency.
Of course, if the applesauce is of poorer quality, Greenwood must also evaluate the potential effects on current and
future revenues that have not been considered in the variances above.
The unfavorable efficiency is entirely attributable to an unfavorable yield ( the mix variance nets to zero). Management
should evaluate the reasons for the unfavorable yield variance. Is it due to poor quality Tolman and Ribston apples which
were acquired at a price lower than budgeted.
sauce is made with a blend

50,000 pounds of applesauce
Budgeted
Price
$0.40
$0.30
$0.20
Budgeted
Cost
$21,000
63,000
17,500
$101,500
ctual Quantity
Actual Quantity
Actual Mix
udgeted Price
Budgeted Quantity
Mix
Budgeted Mix
Yield
Budgeted Mix
Variance
Budgeted Price
Variance
Budgeted Price
$28,800
$7,200
360,000 X .15 X $.40 =
$21,600
$600
350,000 X .15 X $.40 =
$21,000
$54,000
(10,800)
360,000 X .60 X $.30 =
$64,800
1,800
350,000 X .60 X $.30 =
63,000
$21,600
3,600
360,000 X .25 X $.20 =
$18,000
500
350,000 X .25 X $.20 =
$104,400
$0
$104,400
$2,900
Mix
Yield
Variance
$2,900
Unfavorable
$0
Efficiency
$2,900
d and, so it had a favorable direct
aluate if these were unrelated

fected efficiency. The net effect
an the loss in efficiency.
17,500
$101,500
Unfavorable
$2,900
2.33333333
2.4000000
-0.0666667
$0.290000
($0.01933)
150,000
($2,900.00)
Budgeted #'s of input per # of output

Actual #'s of input per # of output
Extra #'s of input per # of output
W/A budgeted cost per # of input
Extra cost per # of output
Pounds of output
ential effects on current and
nce nets to zero). Management

Tolman and Ribston apples which
0.42857143
0.4166667
0.01190476
$0.676667
$0.008056
360,000
$2,900.00
Budgeted: #'s of output per # of input

Actual: #'s of output per # of input
Decreased #'s of output per # of input
W/A budgeted cost per # of output
Extra cost per # of input
Pounds of input
Exercise 14-36
Given:
The Energy Products Company produces a gasoline additive, Gas Gain, that
increases engine efficiency and improves gasoline mileage. The actual and
budgeted quantities (in gallons) of materials required to produce Gas Gain and
the budgeted prices of materials in August 2003 are as follows:
Flexible
Actual
Actual Budgeted Budgeted Actual Budgeted
Chemical
Quantity
Mix
Quantity
Mix
Price
Price
Echol
24,080
0.28
25,200
0.30 $0.22
$0.20
Protex
15,480
0.18
16,800
0.20 $0.46
$0.45
Benz
36,120
0.42
33,600
0.40 $0.12
$0.15
CT-40
10,320
0.12
8,400
0.10 $0.27
$0.30
Total
86,000
1.00
84,000
1.00
Required:
1. Calculate the total DM efficiency variance for August 2003.
2. Calculate the total direct materials mix and yield variances for August 2003.
3. What conclusions would you draw from the variance analysis?
Actual Quantity
Actual Quantity
Actual Mix
Actual Price
Echol
Protex
Benz
CT-40
Price
Actual Mix
Variance
Standard Price
Mix
Variance
86,000 X .28 X $.22 =
$5,297.60
$481.60 86,000 X .28 X $.20 =
$4,816.00
($344.00)
86,000 X .18 X $.46 =
$7,120.80
$154.80 86,000 X .18 X $.45 =
$6,966.00
($774.00)
86,000 X .42 X $.12 =
$4,334.40
($1,083.60) 86,000 X .42 X $.15 =
$5,418.00
$258.00
86,000 X .12 X $.27 =
$2,786.40
($309.60) 86,000 X .12 X $.30 =
$3,096.00
$516.00
$20,296.00
($344.00)
$19,539.20
($756.80)
Price
Mix
Favorable
Energy products used a larger total quantity of direct-material inputs than budgeted,
and so showed an unfavorable yield variance.
The mix variance was favorable because the actual mix contained more of the budgeted
cheapest input, Benz, and less of the most costly input, Protex, than the budgeted mix.
The favorable mix variance offset some, but not all, of the unfavorable yield variance -the overall efficiency variance was unfavorable.
Energy Products will find it profitable to shift to the cheaper mix only if the yield from this
cheaper mix can be improved. Energy products must also consider the effect on output
quality of using the cheaper mix, and the potential consequences for future revenues.
Actual Quantity
Standard Quantity
Standard Mix
Standard Price
Yield
Standard Mix
Variance
Standard Price
86,000 X .30 X $.20 =
$5,160.00
$120.00 84,000 X .30 X $.20 =
$5,040.00
86,000 X .20 X $.45 =
$7,740.00
$180.00 84,000 X .20 X $.45 =
$7,560.00
86,000 X .40 X $.15 =
$5,160.00
$120.00 84,000 X .40 X $.15 =
$5,040.00
86,000 X .10 X $.30 =
$2,580.00
$60.00 84,000 X .10 X $.30 =
$2,520.00
$20,640.00
$480.00
Yield
$136.00
Efficiency
Unfavorable
Unfavorable
$20,160.00

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Exercise 14-25 Variance analysis, multiple products -- sales variances

Budget Information for 2011

Budgeted W/A CM per unit

Actual for August 2011

Actual W/A CM per unit

Exercise 14-26 Market-share and market-size variances (continuation of 14-25).

Actual Market Size

Actual Market Size

Budgeted Market Size

Actual Market Share

Budgeted Market Share

Budgeted Market Share

Budgeted Average CM per Unit

Budgeted Average CM per Unit

Budgeted Average CM per Unit

27,500,000 X .10 X $2.260

27,500,000 X .12 X 2.260

20,000,000 X .12 X $2.260

Actual Market Share

Budgeted Market Share

Total Sales Variance: Actual Sales $

Budgeted Market Size

Budgeted Market Size

Actual Market Share

Actual Market Share

Budgeted Market Share

Budgeted Average CM per Unit

Budgeted Average CM per Unit

Budgeted Average CM per Unit

Actual market size

Actual Market Share

Budgeted market size

Budgeted Market Share

Actual Market Size

Budgeted Market Size

Actual Market Share

Budgeted Market Share

Budgeted Market Share

Budgeted Average CM per Unit

Budgeted Average CM per Unit

Budgeted Average CM per Unit

Total Size Change

Co. Size Chg.

Caused by both size and share changes together.

Actual Market Size

Actual Market Size

Actual Market Size

Actual Market Size

Actual Market Size

Actual Market Share

Actual Market Share

Actual Market Share

Actual Market Share

Budgeted Mkt. Share

Actual input ratio

Actual input ratio

Actual input ratio

Budgeted input ratio

Budgeted input ratio

erage CM per Unit

erage CM per Unit

erage CM per Unit

Budgeted Market Size