Chapter 7

14.
a. Direct material variance based on quantity purchase:
AQ*(AP-SP) =12800*(0.97-0.95) =256(A)
Direct material quantity variance:
SP*(AQ-SP) = 0.95*(10700-(300*35) = 190(A)
b. Price variance: purchasing department
Quantity variance: production department
c. Reasons for price variance:

 The purchasing dep. Doesn’t perform well, so they can’t take the best price for
the company.
 Because of inflation, all prices of every goods increase, so the price of this
increase
 The more competitors, the higher the price, because the demand increases and the
supply is still stable, so there is a lack of materials, and the suppliers increase the
price
Reasons for quantity variance ( Unfavourable)
 Lack of skilled workers.
 Lack of good administration
 Lack of good strategy to motivate workers
16.
SH.SR : 350*195 3900F
AH.SR: 330*195
AH.AR 330*a x

We have: 3900+ x = -2500 x= 6400 U

330*(195-a)=-6400 a= 214.39

AH.AR= 70750

18.
SQ*SP: 6* 0.5* 2400 800U
AQ.SP: 6* x 12375 U
AQ.AP: 20375

SQ= 2400*0.5= 1200 AQ*AP= 8000

AQ= (7200+800):6= 1333
c, material price variance: 20375- 8000= 12375 U
labour
SH.SR: 2400*2*17 3400U: efficiency variance
AH.SR: 5000*17 650F
AH.AR: 5000*a
AH.AR=84350
e, standard price cost: (7200+ 81600): 2400= 37
f, actual price cost: (20375+81600):2400=43.6

20
Case A Case B Case C Case D
Unit produce 800 750 240 1500

Standard 3 0.8 2 3
hours per unit
Standard 2400 600 480 4500
hours
Standard rate 7 10.4 9.5 6
per hour
Actual hour 2330 675 456 4875
work
Actual labor 15844 5940 4560 26812.5
cost
Rate variance 466F 1080F 228U 2437.5F

Efficiency 490F 780A 228F 2250A

variance

22.
4 approach
Variance overhead

Actual budget applied

$25900 3*8950 3*8800

$950 F $450U

VOH spending Variance VOH efficiency variance

500 F: total variance

Fixed overhead

Actual budget applied

$ 72600 $72000 $ 4,5*4980
$600U $1600 U

FOH spending variance FOH volume variance

2200 U
b.
Actual budget at actual budget at standard applied
VOH: 25900 3*8950=26850 3*8800=26400 3*8800=26400
FOH: 72600 72000 72000 8*8800=70400

$98500 $98850 $98400 $96800

$350F $450F 1600U

OH spending Oh efficiency Volume

c.

Actual Budget Applied

VOH: $25900 $3*8800=$26400 $3*8800=26400
FOH: $72600 $72000 $8*8800=70400

$98500 $98400 $96800

$100 U $1600 U

23.

Variance overhead rate: 270000: 60000= 4.5

Fixed overhead rate: 118800: 3300= 36

Actual budget applied

$22275 4.5*4900 4.5*4980

225 U 360F

VOH spending Variance VOH efficiency variance

135 F: total variance

Fixed overhead

Actual budget applied

$ 9600 $118800:12 $36*240
$300F $1260 U

FOH spending variance FOH volume variance

960 U
b.

Variable Manufacturing Overhead 22275

Fixed manufacturing overhead 9600
Various account 31875
To record actual overhead costs

Working in process 31050

Variable manufacturing overhead 22410
Fixed manufacturing overhead 8640
To apply overhead to work in process

Variable overhead spending variance 225

Variable manufacturing overhead 135
Variable overhead efficiency variance 360
To record variable overhead variances
Volume variance 1260
Fixed manufacturing overhead 960
Fixed manufacturing spending variance 300
To record fixed overhead variances

18.
g.
The first thing we can see here is that the actual cost much more higher than the standard
cost. The main reasons for this are some unfavorable variances of materials and labor
First, in materials, we can see, the price and the quantity variances are unfavorable. The
reasons for price material maybe are inflation, the weakness of purchasing department or
the increase of competition, so the more demand is and the stable or the less supply is.
This makes the price goes up. In the labor, we can see, in the efficiency, there is the
unfavorable variance, this can be caused by the lack of skilled workers and good
administration. Although there is a favorable variance in labor rate, this is pretty small
when compared with the unfavorable variance in efficiency. This is the consequence of
the use of unskilled workers.
Chapter 9
9.
a. Variable production cost per unit
(75000+50000+37500):150000= 1.0833
b. total contribution:
240000-1.083*90000-45000= 97530
Contribution margin per unit: 97530: 90000= 1.084

c. Income statement
Revenue 240000
Variable production cost 162500
Variable selling and administration expense 45000
Closing inventory (64980)
Total variable cost of goods of sale (142520)
Total contribution 97480
Fixed production overhead (56250)
Fixed selling and administration cost (50000)
Net profit (8770)

10.
a. total revenue increases: 25+21= 46
b. total cost increases: 21
c. income before tax increase: 25

11.
Break even point in unit: 60000: (30-15) + 4000 (unit)
Break even point in dolar: 60000: [(30-15):30]= 120000$

14
Regard minimum price per unit as X
Variable cost= 70% price
We have:
0.3X..60000= 600000+300000 X=50$

15.
Variable cost per unit: 150+700= 850
a. the number of unit to be breakeven: 130000: (1500-850)= 200
b. the number of unit to earn profit of $195000: (130000+195000): (1500-850)= 500
c. the number of unit to earn profit of 260000: (130000+260000):650= 600

17.
a.
Profit before tax: 224000
Tax 40%
Profit after tax 134400
The number of unit to earn profit before tax of 224000:
 (130000+224000): 650= 545
b.
Regard the number of unit is X
We have: revenue: 1500X
Profit after tax 150X profit before tax: 150X: 0.6= 250X
The number of unit:
X= (130000+250X): 650 X= 325 unit
Revenue: 1500*325= 487500

19.
Variable cost: 4500000*0.6= 2700000
CM ratio (4500000-2700000):4500000= 0.4
Regard Revenue needed to earn target: X
We have:
X= (50000*12+0.3*X):0.4 X= 6000000

Annual sales must increase: 6m- 4,5m= 1,5m

22.
a. people using the ferry each day: 1450: 0.5= 2900
b. each passenger is charged to be break even: 1800:2900= 0.62
To make profit of 250 each day, each passenger must be charged:
(250+1800):2900= 0.71
c. Fixed cost: 1800*0.8= 1440
Variable cost: 1800-1440= 360
Variable cost per passenger: 360: 2900= 0.124
Passenger volume: 2900* 0.9= 2610
Expected loss= (2610*0.6)- (2610*0.124) – 1440= $197.64
Existing loss: 1800- 1450= 350
The country will be better of 152.36 $
d. regard the step we have to make profit as x ( x belongs to N*)
We have: Passenger volume: 2900-2900.0.05x= 2900-145x
Price: 0.5+0.2x
Sale: (2900-145x)* (0.5+0.2x)
Cost: 0.121* (2900-145x) +1440
To make profit: Sale > cost (2900-145x)*(0.5+0.2x)> 0.121*(2900-145x)+ 1440

29x2-525.045x+304.9<0

x€ (0.6; 17)
x belongs to N* the first price to make profit is 0.7 when x=1
e. “ we may be showing a loss but we can make it up in volume”.
In this saying, we concern about the vicious circle between price and volume. If we want
to increase the volume we have to decrease the price to attract customer. Therefore, the
more we reduce the price, the higher volume we get. In some circumstance, for example
in the introduction stage of a product, if we want to increase the volume, to attract new
customers, we have to decrease the price, maybe below the total cost, at that time, we
have high volume , but the contribution is still less than the total fixed cost, we still have
a loss. But this is also a strategy of managers, they are ready to accept the loss to increase
the volume, to gain the supports of customers, especially at the introduction stage of a
new product.

28.
a. CM ratio: (7.2-4.32):7.2= 0.4
BEP in dollars: 316600:0.4= 791500
Margin of safety: 125000*7.2- 791500=108500 $
Margin of safety in unit: 108500:7.2= 15069 units
b. profit before tax= contribution margin- fixed costs
=(125000*7.2-125000*4.32)-316600
=43400
Degree of operational leverage= contribution: profit before tax
=360000;43400= 8.295
c. income will increase: 8.295* 30%= 249%

Check :
Sales : 1170000
Variable cost: (702000)
Contribution 468000
Fixed cost (316600)
Net income 151400
Income will increase: (151400-43400): 43400= 249%

d.
Sales ( 7.2*125000*1.15) 1035000
Variable cost ( 4.32*125000*1.15) (621000)
Contribution 414000
Fixed cost (316600+ 41200) (357800)
Net income 56200

BEP in revenue: 357800: (414000:1035000)= 894500

Degree of operation leverage: 414000:56200= 7.37

31.
Regard the number of liquid is x the number of spray is 2x
We have:
Total contribution= 10x+2x*5
At BEP we have: C= fixed cost 20x= 100000 x= 5000
The number of spray is 10000
b. BEP= 1600: C C= 0.4
If sales are 4001 C= 1600.4
We have : profit= C- fixed cost
Id C increases 0.4, fixed cost is still stable, profit will increase 0.4
 d. Pretax profit= revenue* 0.1:0.6= 0.167* revenue
Pretax profit= revenue-variable cost-fixed cost
0.25* 10X=10X-0.4*10X-216000
3.5X= 216000

X= 61715 units
e. Margin of safety in unit: 3200-2800=400 units
Margin of safety in dollars: 400*65= 26000
Margin of safety in percentage: 26000 : ( 3200865)=0.125= 12.5%

Chapter 8
17.
Projected revenue for 2009:
Interest of business loan : 3m*6,5%= 195000
Interest of consumer loan: 2m*13%= 260000
Interest of government securities 0.8m*3.5%=28000
Total revenue: 483000

20 $000
Opening Sales Closing Production
January to 27 540 34 547
march
April to June 34 680 24.5 670.5

July to 24.5 490 27.5 493

September
October to 27.5 550 30 552.5
December
Total 2260 2263

22
a. total concrete culvert produce in June: 380000-24500 +20000= 375500
000
Opening Closing Used Pounds to Cost
inventory inventory purchase
Concrete 82 68.8 3004 2990.5 328.988
(8*375.5) (3004+68.8- (2990.5*0.11)
82)
Gravel 65.3 92.5 5632.5 5659.7 282.985
(15*375.5) (5632.5- (5659.7*0.05)
 92.5+65.3)
24. $000
Cash collection

November 16.434
(41.5*40%- 41.5*40%*1%)
December 27.498
(41.5*30%+ 38*40%- 38*40%*1%)
January 39.492
(41.5*30%+38*30%+39.5*40%-39.5*40%*1%)
February 40.674
(38*0.3+39.5*0.3+44*0.4-44*0.4*0.01)
March 36.732
(39.5*0.3+ 44*0.3+29.5*0.4- 29.5*0.4*0.01)

b. balance of receivable at March 31, 2009: 44000*0.3+29500*0.6=30900 $

25.
Regard total sales in April as X
We have:
Closing balance of receivable on 30 April: 0.75X-0.75* 0.6X= 0.3 X
In May, we have:
0.3X+135000= 173250+ 0.75*0.25X X= 340000
Total credit sales of April 2009: 170000*0.75= 255000
Total Credit sales in May : 135000: 0.4= 337500
Projected cash received:
850000*25%+ 337500*25%+ 15%*255000+85000*75%*60%= 717625 $
The expected account receivable at June 30 2009:
850000*75%*40%+337500*15%= 305625$
30.
April May June Total
Beginning cash 3700 3600 ? ?
balance
Cash receipt 8200 10100 ? ?

Total cash 11900 13700 20500 38900

available
Cash
disbursement
Payments on 1300 3900 5700 ?
account
Wages 5000 6100 6200 17300
expenses
Overhead cost 4000 4600 ? 13000

Total cash 10300 14600 16300 ?

disbursements
Cash 1600 (900) ? ?
excess( deficie
ncy)
Minimum cash (3500) (3500) (3500) (3500)
balance
Cash available (1900) (4400) ? (5800)

Financing
Borrowings 2000 ? (500) ?
( repayment)
Acquire( sell) 0 0 ? ?
investment
Receive ( pay) 0 0 ? (10)
interest
Ending cash 3600 ? ? 3690
balance
33.
a. account receivable at July 31: ($000)
750+ 900-660-27= 963
b. The amount affect the cash budget: collection of credit sales, account receivable
at June, estimated credit sales for July
c. The amount affect the budget income statement: credit sales for July, write-off
credit sale, provision for uncollectible credit sale