Level 1 AnalysisPurchases UsagePayablesStatic-budget ActualTravel expensesStatic-Budget ActualPrice variance = – ×7-16 (20–30 min.) Flexible budget.ActualResults(1)Flexible-BudgetVariances(2) = (1) – (3)FlexibleBudget(3)Sales-VolumeVariances (4) = (3) – (5)StaticBudget (5)Units sold 2,800g 0 2,800 200 U 3,000gRevenues $313,600a$ 5,600 F $308,000b$22,000 U $330,000cVariable costs 229,600d 22,400 U 207,200e 14,800 F 222,000fContribution margin 84,000 16,800 U 100,800 7,200 U 108,000Fixed costs 50,000g 4,000 F 54,000g 0 54,000gOperating income $ 34,000 $12,800 U $ 46,800 $ 7,200 U $ 54,000$12,800 U $ 7,200 UTotal flexible-budget variance$20,000 UTotal static-budget variancea $112 × 2,800 = $313,600b $110 × 2,800 = $308,000c $110 × 3,000 = $330,000d Given. Unit variable cost = $229,600 ÷ 2,800 = $82 per tiree $74 × 2,800 = $207,200f $74 × 3,000 = $222,000g Given2. The key information items are:Actual BudgetedUnitsUnit selling priceUnit variable costFixed costs2,800$ 112$ 82$50,0003,000$ 110$ 74$54,000The total static-budget variance in operating income is $20,000 U. There is both an unfavorabletotal flexible-budget variance ($12,800) and an unfavorable sales-volume variance ($7,200).The unfavorable sales-volume variance arises solely because actual units manufacturedand sold were 200 less than the budgeted 3,000 units. The unfavorable flexible-budget varianceof $12,800 in operating income is due primarily to the $8 increase in unit variable costs. Thisincrease in unit variable costs is only partially offset by the $2 increase in unit selling price andthe $4,000 decrease in fixed costs.7-17-18 (25–30 min.) Flexible-budget preparation and analysis.1. Variance Analysis for Bank Management Printers for September 2007Level 1 AnalysisActualResults(1)Static-BudgetVariances(2) = (1) – (3)StaticBudget(3)Units soldRevenue 12,000$252,000a 3,000 U$ 48,000 U 15,000$300,000cVariable costs 84,000d 36,000 F 120,000fContribution marginFixed costsOperating income168,000 150,000$ 18,00012,000 U 5,000 U$ 17,000 U180,000 145,000$ 35,000 $17,000 U Total static-budget variance2. Level 2 AnalysisActualResults(1)Flexible-BudgetVariances(2) = (1) –(3)FlexibleBudget(3)SalesVolumeVariances(4) = (3) –(5)StaticBudget(5)Units sold 12,000 0 12,000 3,000 U 15,000Revenue $252,000a$12,000 F $240,000b$60,000 U $300,000cVariable costs 84,000d 12,000 F 96,000e 24,000 F 120,000fContribution margin 168,000 24,000 F 144,000 36,000 U 180,000Fixed costs 150,000 5,000 U 145,000 0 145,000Operating income $ 18,000 $19,000 F $ (1,000) $36,000 U $ 35,000$19,000 F $36,000 UTotal flexible-budget Total sales-volumevariance$17,000 UTotal static-budget variancea 12,000 × $21 = $252,000 d 12,000 × $7 = $ 84,000b 12,000 × $20 = $240,000 e 12,000 × $8 = $ 96,000c 15,000 × $20 = $300,000 f 15,000 × $8 = $120,0003. Level 2 analysis provides a breakdown of the static-budget variance into a flexible-budget variance and a sales-volume variance. The primary reason for the static-budget variancebeing unfavorable ($17,000 U) is the reduction in unit volume from the budgeted 15,000 to anactual 12,000. One explanation for this reduction is the increase in selling price from a budgeted$20 to an actual $21. Operating management was able to reduce variable costs by $12,000relative to the flexible budget. This reduction could be a sign of efficient management.Alternatively, it could be due to using lower quality materials (which in turn adversely affectedunit volume).7-27-22 (15 min.) Materials and manufacturing labor variances.Actual CostsIncurred(Actual Input Qty.× Actual Price)Actual Input Qty.× Budgeted PriceFlexible Budget(Budgeted InputQty. Allowed for Actual Output × Budgeted Price)DirectMaterials$200,000 $214,000 $225,000$14,000 F $11,000 FPrice variance Efficiency variance$25,000 FFlexible-budget varianceDirect $90,000 $86,000 $80,000Mfg. Labor$4,000 U $6,000 UPrice variance Efficiency variance$10,000 UFlexible-budget variance7-25 (30 min.) Price and efficiency variances, journal entries.1. Direct materials and direct manufacturing labor are analyzed in turn:Actual CostsIncurred(Actual Input Qty.× Actual Price)Actual Input Qty.× Budgeted PriceFlexible Budget(Budgeted InputQty. Allowed for Actual Output × Budgeted Price)DirectMaterials(100,000 × $3.10a)$310,000 Purchases Usage (100,000 × $3.00) (98,073 × $3.00)$300,000 $294,219(9,810 × 10 × $3.00)$294,300$10,000 U $81 FPrice variance Efficiency varianceDirectManufacturingLabor(4,900 × $21b)$102,900(4,900 × $20)$98,000(9,810 × 0.5 × $20) or(4,905 × $20)$98,100$4,900 U $100 FPrice variance Efficiency variancea $310,000 ÷ 100,000 = $3.10 b $102,900 ÷ 4,900 = $212. Direct Materials Control 300,0007-3Direct Materials Price Variance 10,000 Accounts Payable or Cash Control 310,000Work-in-Process Control 294,300 Direct Materials Control 294,219 Direct Materials Efficiency Variance 81Work-in-Process Control 98,100Direct Manuf. Labor Price Variance 4,900 Wages Payable Control 102,900 Direct Manuf. Labor Efficiency Variance 1003. Some students’ comments will be immersed in conjecture about higher prices for materials, better quality materials, higher grade labor, better efficiency in use of materials, and so forth. A possibility is that approximately the same labor force, paid somewhat more, is taking slightly less time with better materials and causing less waste and spoilage.A key point in this problem is that all of these efficiency variances are likely to beinsignificant. They are so small as to be nearly meaningless. Fluctuations about standardsare bound to occur in a random fashion. Practically, from a control viewpoint, a standardis a band or range of acceptable performance rather than a single-figure measure.4. The purchasing point is where responsibility for price variances is found most often.The production point is where responsibility for efficiency variances is found most often.Chemical, Inc., may calculate variances at different points in time to tie in with thesedifferent responsibility areas.7-47-27 (2030 min.) Materials and manufacturing labor variances, standard costs.1. Direct