Question

Samson Equipment Ltd. is a company that manufactures an abdominal exerciser called The Ab Rippler. The following information is for three of the company's activities in 2018:

                                                                   Rate per Output unit/Batch

                                                       Static                                   Actual

Activity          Activity Level   Cost Driver           Budget          Cost

Manufacturing    Output unit Machine hours         $0.90         $1.05

Inspecting               Batch       Inspection hours    $15.00         12.50

Packaging               Batch       Packaging hours      $5.50         $5.25

The output measure is the number of units produced.

                                                                                 Static       Actual

                                                                                Budget      Amount

Number of units produced                                     40,000        44,400

Number of machine hours                                     16,000        14,800

Batch size in terms of units produced:

      Inspection                                                                5                 4

      Packaging                                                              20               25

Required:

a.    Calculate the flexible-budget variance for each activity in 2018.

b.   Calculate the price and efficiency variances for each activity in 2018.

Answer 1

A. Flexible Budget Variance

* Manufacturing

: [($44,400 × (16,000/ 40,000))× $0.90 ] - (14,800 × 1.05 )

= (44,400 × $ 0.36) - $15,540

= $15,984 - $15,540 = $444 Favourable

* Inspecting ;

((44,400 / 5 ) × $15 ) - (( 44,400 / 4 ) × $ 12.50 )

=$133,200 - $138,750

= $5,550 Unfavourable

* Packaging :

((44,400 / 20 ) × $5.50 ) - ((44,400 / 25) × $5.25 )

= $12,210 - $9,324

= $2,886 Favourable

B. Price and Efficiency Variance

* Manufacturing ;

Price : ($0.90 - $ 1.05 ) × 14,800

= $2,220 Unfavourable

Efficiency :

((44,400 / (40,000 / 16,000)) - 14,800) × $ 0.90 )

= (44,400 / 2.5 - 14,800 ) × $ 0.90

= $ (2,960 ) × 0.90 = $2,664 Favourable

* Inspecting;

Price : ($15 - 12.50 ) × (44,400 /4)

= $2.5 × 11,100 = $27,750 Favourable

Efficiency :

((44,400 / 5 ) - (44,400 / 4 ) × $15

= (8,880 - 11,100) × $15

= (2,220 ) × $15 = $33,300 Unfavourable

* Packaging;  

Price ;

($5.50 - $5.25 ) × (44,400 / 25)

= $.25 × 1,776 = $444 Favourable

Efficency :

((44,400 /20 ) - (44,400 / 25 )) × $ 5.50

= (2,220 - 1,776 ) × $ 5.50

= (444) × $5.50 = $2,442 Favourable