CHAPTER 21

ANALYZING OTHER VARIANCES

Problems
Problem 21-1: Beta Division

Bdgt. Vol. @
Bdgt Mix @
Bdgt. Margin

Act. Vol. @
Bdgt. Mix @
Bdgt. Margin

Sales Vol. Var.

Product
1

3,200 @ $10
= $32,000

Mix Var.

3,072 @ $10
= $30,720
$1,280 U

1,700 @ $13
= $22,100

5,100 @ $9
= $45,900

Act. Vol. @
Act. Mix @
Act. Margin

Unit Margin Var.

2,850 @ $10
= $28,500
$ 2,220 U

1,632 @ $13
= $21,216
884 U

Total

Act. Vol. @
Act. Mix @
Bdgt. Margin

2,850 @ $10.20
= 29,070
$ 570 F

2,500 @ $13
= $32,500
11,284 F

4,896 @ $9
= $44,064

2,500 @ $12.58
= $31,450
1,050 U

4,250 @ $9
= $38,250

4,250 @ $8.80
= $37,400

1,836 U

5,814 U

850 U

$4,000 U

$ 3,250 F

$1,330 U

Check: 10,000 x $10.00 9,600 x $10.20 = $2,080 U.

$2,080 U Net

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Problem 21-3: Delta Division

Gross margin variances:
Budgeted unit margin, A = $240 ($60 + $50 + $60) = $70
Budgeted unit margin, B = $148 ($45 + $30 + $36) = $37
Actual unit margin, A = ($427,000 1,750) - $170 = $74
Actual unit margin, B = ($481,000 3,250) - $111 = $37
Sales volume variance: $0. This can be determined by inspection because both actual and budgeted total
volumes were 5,000 units.
Mix variance:
A: (1,750 1,900) x $70
B: (3,250 3,100) x $37

=
=

$10,500U
5,550F
$ 4,950U

Unit margin variance:

A: ($74 - $70) x 1,750
B: (by inspection)

=
=

$7,000F
0
$7,000F

Net margin variance

$4,950U + $7,000F = $2,050F

Labor variances:
Standard labor per unit, A: $50 $20/hr. = 2.5 hrs./unit
Standard labor per unit, B: $30 $20/hr. = 1.5 hrs. unit
Efficiency variance:

Rate variance:
=
[$20 ($187,110 9,450 hr.] x 9,450]
Net labor variance =

1,890F
$ 890F

Materials variances:
Standard materials per unit, A: $60 $1.50/lb. = 40 lbs.
Standard materials per unit, B: $45 $1.50/lb. = 30 lbs.
Usage variance:
[(1,900 x 40) + (3,100 x 30) 180,000] x $1.50 = $16,500 U
Price variance:
[$1.50 - $275,400 180,000)] x 180,000

5,400U

2007 McGraw-Hill/Irwin

Chapter 21

Net materials variance

= $21,900U

$75,200 + $0.80 ($187,110) - $265,192

= $40,304U

1.2 ($187,110) - $224,888

Net overhead variance

=
356F
= $39,948U

Overhead variances:
Spending variance:
Volume variance:

Sum of all variances (profit variance):

$2,050 F + $21,900 U + $890 F + $39,948 U

= $58,908U

Statement of Budgeted and Actual Gross Margin

Budget
Actual
Revenues.............................................................................................................................................................................
$914,800
$908,000
Cost of goods sold...............................................................................................................................................................
667,100
658,250
Gross margin @ std.............................................................................................................................................................
247,700
249,750
Production cost variances:
Materials usage...............................................................................................................................................................
-(16,500)
Materials price................................................................................................................................................................
-(5,400)
Labor efficiency..............................................................................................................................................................
-(1,000)
Labor rate........................................................................................................................................................................
-1,890
Overhead volume............................................................................................................................................................
-356
Overhead spending..........................................................................................................................................................
-(40,304)
Total variances................................................................................................................................................................
-(60,958)
Gross margin, actual............................................................................................................................................................
$247,700
$188,792
Standard gross margin increased by $2,050 because of a $4 per unit higher margin on Product A; but a
shift in product mix toward lower-margin Product B more than eliminated this gain. The production cost
variances are self-explanatory, except for the overhead volume variance; this $356 represents the amount
our predetermined standard overhead cost per unit overcharged products for overhead, because our
planned overhead was $1.20 per direct labor dollar, but our actual overhead was way overspent ($40,304).
(Some students will offer details on the other production cost variances, which is fine.)

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Case
Case 21-1: Campar Industries, Inc.
Note: This case is unchanged from the Eleventh Edition.
Alpha Division

Unit margin, budgeted:.....................................................................................................................................................

$72 - $43 = $29
Unit margin, actual:..........................................................................................................................................................
($1,658,250 / 22,000) - $43 = $75.38 - $43 - $32.38
Unit margin variance
= Unit margin * Actual volume
= ($32.38 - $29) * 22,000 = $74,360 F
Sales volume variance
= Volume * Bdgt. unit margin
= (22,000 - 24,000) * $29 = $58,000 U
Net gross margin variance
= Act. gross margin Bdgt. gross margin
= 22,000 * $32.38 - 24,000 * $29 = $16,360 F
Check: $74,360 F + $58,000 U = $16,360 F
The unfavorable volume variance is more than overcome by the favorable unit margin (also often
called selling price) variance. I point out to students how this problem illustrates the importance of
calculating margin variances rather than revenue variances.
Beta Division on following page.
Gamma Division
Mix variance:
(Standard Mix*

Actual Quantity)

Standard
= Mix Variance
Price
Material X.....................................................................................................................................................................................
(6,000
5,500)
*
$1.69
=
$ 845 F
Material Y.....................................................................................................................................................................................
(4,000
4,500)
*
$2.34
=
1,170 U
$ 325 U

*Actual quantity used at budgeted proportion (60/40).

Price variance:
Standard Price

Actual Price)

Actual Quantity

Price
Variance
Material X.....................................................................................................................................................................................
($1.69
$1.69)
*
5,500
=
$0
Material Y.....................................................................................................................................................................................
($2.34
$2.53)
*
4,500
=
855 U
$855 U
Usage variance:
(Standard quantity
(9,900
Net variance:

Actual quantity)
10,000)

*
*

Standard Price
$1.95

=
=

Usage variance
$195 U

Mix variance
$325 U
Check:

+
+

Price variance
$855 U

Usage variance
$195 U

=
=

$1,375 U

Actual cost
Standard cost
Net variance

=
=
=

9,900 lbs. * $1.95

$20,680
19,305
$1,375U

2007 McGraw-Hill/Irwin

Chapter 21

Beta Division
Bdgt. Vol. @
Bdgt Mix @
Bdgt. Margin

Act. Vol. @
Bdgt. Mix @
Bdgt. Margin
Sales Vol. Var.

Pdt.
1
2
3
Total

Act. Vol. @
Act. Mix @
Bdgt. Margin
Pdt. Mix Var.

Act. Vol. @
Act. Mix @
Act. Margin
Unit Margin Var.

3,200 @ $12
= $38,400

$1,536 U

3,072 @ $12
= $36,864

$2,664 U

2,850 @ $12
= $34,200

$684 F

2,850 @ $12.24
=$34,884

1,700 @ $15.60
= $26,520

$1,061 U

1,632 @ $15.60
= $25,459

$13,541 F

2,500 @ $15.60
= $39,000

$1,250 U

2,500 @ $15.10
= $37,750

$2,203 U
$4,800 U

4,896 @ $10.80
= $52,877
+

$6,977 U
$3,900 F

4,250 @ $10.80
= $45,900
+

$1,020 U
$1,586 U

4,250 @ $10.56
= $44,880
= $2,486 U Net

5,100 @ $10.80
= $55,080

Check: 9,600 x $12.241 10,000 x $12.00 = $2,486 U.

The analysis indicates that if Beta explicitly changed its marketing program in order to produce the actual results, this was not a good move. The
shift toward a richer mix did not generate enough additional margin to overcome the unfavorable sales volume and unit margin impacts.

Accounting: Text and Cases 12e Instructors Manual

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There are two mistakes students frequently make in this analysis. First, some forget to change the order of
subtraction in the gross margin mix variance formula with the result that they show a favorable mix
variance. A little discussion quickly reveals why it must be unfavorable, and reminds them again that
whether a variance is favorable or unfavorable should be a matter of common sense (Will the
phenomenon described tend to increase or decrease profit?) rather than algebraic sign. Second, some
students calculate the mix variance this way
X:
Y:

(Standard Mix
(5,940
(3,960

Actual Quantity)
5,500)
4,500)

*
*
*

Standard Price
$1.69
$2.34

=
=

$ 744 F
1,264 U
$ 520 U

Since 5,940 + 3,960 = 9,900 rather than 10,000, this approach changes both the mix and the quantity
between the terms in parentheses. Thus, this would give a combined mix and usage variance; note that in
the correct calculation, the sum of the mix and usage variance is in fact $520 unfavorable.
Delta Division
Gross margin variances:
Budgeted unit margin, A = $300 - ($72 + $62.50 + $75) = $90.50
Budgeted unit margin, B = $185 - ($54 + $37.50 + $45) = $48.50
Actual unit margin, A = ($533,750 / 1,750) - $209.50 = $95.50
Actual unit margin, B = ($601,250 / 3,250) - $136.50 = $48.50
Sales volume variance: $0. This can be determined by inspection because both actual and
budgeted total volumes were 5,000 units.
Mix variance:
A: (1,750 -1,900) * $90.50
B: (3,250 - 3,100) * $48.50
Unit margin variance:
A: ($95.50 - $90.50) * 1,750
B: (by inspection)

=
=

$13,575 U
7,275 F
$6,300 U

$ 8,750F
0
$8,750 F
Net margin variance = $6,300 U + $8,750 F = $2,450 F
Materials variances:
Standard materials per unit, A: $72 / $l.80/lb. = 40 lbs.
Standard materials per unit, B: $54 / $l.80/lb. = 30 lbs.
Usage variance:
[(l,800 * 40) + (3,300 * 30) - 180,000] * $1.80 = $16,200 U
Price variance:
[$1.80 - ($330,480 / 180,000)] * 180,000
Net materials variances:

=
=

$ 6,480 U
$22,680 U

2007 McGraw-Hill/Irwin

Chapter 21

Labor variances:
Standard labor per unit. A: $62.50 / $25/hr. = 2.5 hrs.
Standard labor per unit, B: $37.50 / $25/hr. = 1.5 hrs.
Efficiency variance:
[(1,800 * 2.5 + 3,300 * 1.5) - 9,450] * $25 = $0
Rate variance:
[$25 - ($233,880 / 9,450)] * 9,450
Net labor variance

=
=

Overhead variances:
Spending variance:
$94,000 + $0.80 (233,880) - $320,000
Volume variance:
$1.20 (233,880) - $281,104
Net overhead variance
Sum of all variances (profit variance):
$2,450F + $22,680U + $2,370F + $39,344U

$2,370 F
$2,370 F

$38,896 U

448 U
$39,344 U

$57,204 U

Delta Division Statement of Budgeted and Actual Gross Margin

Budget
Actual
Revenues..............................................................................................................................................................
$1,143,500 $1,135,000
Cost of goods sold @ standard.............................................................................................................................
821,200
810,250
Gross margin @ standard.....................................................................................................................................
$ 322,300 $ 324,750
Production cost variances:
Materials usage................................................................................................................................................
-(16,200)
Materials price.................................................................................................................................................
-(6,480)
Labor rate.........................................................................................................................................................
-2,370
Overhead spending...........................................................................................................................................
-(38,896
)
Overhead volume.............................................................................................................................................
-(448)
Total variances
-(59,654)
......................................................................................................
.........................................................................................................................................................................
Gross margin, actual.............................................................................................................................................
$ 322,300 $ 265,096
Standard gross margin increased by $8,750 because of a $5 per unit higher margin on Product A; but a
shift in product mix toward lower-margin Product B eliminated $6,300 of this gain. The production cost
variances are self-explanatory, except for the overhead volume variance; this represents the amount the
predetermined standard overhead cost per unit undercharged products for overhead, because the overhead
rate was based on a planned volume of 235,000 DL$, whereas the actual volume was slightly less,
233,880 DL$. (Some students will offer details on the other production cost variances, which is fine.)