acct 620 chapter 10

CHAPTER 11

CHAPTER 10

PROFIT AND COST CENTER PERFORMANCE EVALUATION

Questions, Exercises, Problems, and Cases: Answers and Solutions

10.1See text or glossary at the end of the book.

10.2b.A responsibility centers variances are calculated holding all other things constant.

10.3a.Marketing.

10.4 It is difficult to evaluate performance without a budget. Organizations might use nonfinancial performance measures as discussed in the chapter such as on-time deliveries, production-cycle efficiency, and percent of errors in products.

Some responsibility centers are responsible only for costs. The assembly unit of a manufacturing plant would be a good example. On the other hand, some responsibility centers, such as sales offices, are responsible for revenues. Other responsibility centers such as corporate divisions are responsible for both revenues and costs. Finally, some responsibility centers are responsible for revenues, costs, and investment in company assets. The designation of responsibility centers depends on the specific organizational structure and management system in the organization.

The percentage of positions filled from within the company may indicate whether or not employees are committed enough to the company to want to advance and employee perception of advancement possibilities. It may also indicate employee commitment by the quality of employee performance. For instance, if positions are not filled internally it may be because the employees are not performing well enough to be promoted.

A standard is related to a cost per unit. Budgets focus on totals.

10.8a.Marketing.

10.9Management must weigh the trade-offs between the costs of an investigation and the costs of letting the process remain out of control for at least one more reporting period (i.e., the benefit of correction).

10.10Responsibility reporting systems identify variances from budget plans and relate those exceptions to the manager responsible for them.

10.11The action that management can take in response to materials price variances is probably quite different than the action that can be taken in response to efficiency variances. The latter is generally more subject to management control. Also, different departments may be responsible for each variance. For example, purchasing may be responsible for the materials price variance, and production for the materials efficiency variance.

10.12The fixed cost variances differ from variable cost variances because fixed costs do not vary with the level of production activity. Therefore, the fixed costs in the flexible budget will be the same as in the master budget (within the relevant range). Additionally, there are no efficiency variances for fixed costs because there is no input-output relationship that can be applied.

10.13An efficiency variance for fixed overhead is not calculated because the figure is meaningless. Efficiency variances require an input/output relationship such as the number of hours (input) per unit of output. Fixed costs provide the capacity to generate output, but there is no input component for fixed costs.

10.14a.AQ X (AP SP).

10.151.Actual overhead is less than budget.

2.Fixed overhead was overapplied, compared to budget, because actual production volume exceeded the estimated volume.

10.16 By involving the workers in the standard setting process NUMMI gains the benefit of using the workers practical experience and knowledge, which can increase the accuracy of the standards. Also, this involvement creates an atmosphere of employee ownership in what is occurring in production, which can increase motivation, efficiency, and quality.

10.17 A coffee shop would use labor variance information to determine if the scheduling of waitpersons is matching the customer demand. Materials variances would be used to monitor the efficiency of cooks and wait persons and control shrinkage.

10.18Under normal circumstances, the purchasing department will acquire all the raw materials it was requested to purchase during the period. It would normally be incorrect to calculate and attribute a materials efficiency variance to the purchasing department because it is not responsible for the actual quantity used in production.

10.191.If variable overhead is applied on the basis of output, there is no measure of efficiency possible. An efficiency variance measures input-output relations and requires both inputs and outputs in the measure.

10.19 continued.

2.The cost of dividing the variable overhead variance into its components might exceed the benefits.

10.20From past cost data and expectations of future prices, the managers could establish standard prices and quantities for the period based on mileage. A typical standard price and quantity could be dollars per mile and miles per period, respectively. A flexible budget (SP X SQ) could be determined for both wages and automobile costs. After the period, actual inputs at Standard (SP X AQ) could be compared to the flexible budget to determine the efficiency variances. Actual inputs at standard could then be compared to actual costs (AP X AQ) to determine the price variances.

10.21(Appendix 10.1)

The mix variances could tell if the professionals are using the level of staff budgeted for the job. For example, are managers doing work budgeted for junior staff?

10.22 (Profit variance analysis.)

SalesFlexible

Master

Actual

PriceBudgetSalesBudget

(14,200CostVari-(14,200Volume(14,000

Units)VariancesanceUnits)VarianceUnits)

Sales Revenue

$172,530a

$2,130 F$170,400c$2,400 F$168,000dLess Variable

Costs

83,780b$12,780 U

71,000

1,000 U

70,000Contribution

Margin

$88,750$12,780 U$2,130 F$99,400$1,400 F$98,000

Less Fixed

Costs

20,000

1,000 F

21,000 --

21,000Operating

Profit

$68,750$11,780 U$2,130 F$ 78,400$1,400 F$77,000a$172,530 = 14,200 Units X $12.15.

b$83,780 = 14,200 Units X $5.90.

c$170,400 = 14,200 Units X $12.

d$168,000 = 14,000 Units X $12.

10.23 (Analyzing period to period change in contribution margin)

In thousands.Analysis Year 2Change in

Profits from

Change in

CostsChange in

Profits from

Change in

Sales PriceChange in Profits from

Change in

Sales VolumeBaseline

Year 1

Sales$1,500$166.7Fc$266.7Ua$1,600

Variable costs 1,050$ 33.3Fd 216.7Fb 1,300

Contributionmargin $450 $ 33.3Fd$166.7Fc $50.0U $300

a$133.33 sales price in Year 1 =.$1,600,000/12,000 units

2,000 unit decrease in volume between years 1 and 2 x $133.33 = $266,667b$108.33 variable cost in Year 1 = $1,300,000/12,000

2,000 unit decrease in volume x $108.33 = $216,667

cSolve for the change in profits from change in sales price as follows:

$1,600 sales in Year 1 - $266.7 effect of unfavorable sales volume - $1,500 sales in Year 2 = $166.7 favorable change due to sales price. dSolve for the change in profits from change in costs as follows:

$1,300 variable costs in Year 1 - $216.7 reduction in costs due to reduce sales volume - $1,050 variable costs in Year 2 = $33.3 favorable change due to change in costs between Years 1 and 2.

10.24(Profit variance analysis.)

Marketing andSalesFlexibleSalesMaster

ActualManufacturingAdministrativePriceBudgetVolumeBudget

(170 Units)VariancesVariancesVariance(170 Units)Variance(200 Units)

Sales Revenue

$18,400

$1,400 F$17,000$3,000 U$20,000

Variable Costs:

Manufacturing

6,880$250 U

6,630

1,170 F

7,800

Marketing

2,060

$190 U

1,870

330 F

2,200Contribution Margin

$9,460$250 U$190 U$1,400 F$8,500$1,500 U$10,000

Fixed Costs:

Manufacturing

485

15 F

500 --

500

Marketing

1,040

40 U

1,000 --

1,000

Administrative

995

5 F

1,000 --

1,000Operating Profit

$6,940$235 U$225 U$1,400 F$6,000$1,500 U$7,50010.25 (Estimating flexible selling expense budget and computing variances.)

a.

Fixed Costs= $30,000 [Salaries] + $60,000 [Advertising] + $3,750 [Sales Office]

= $93,750.

Variable Costs

as a Function= (.05 [Commissions] X Revenue) + (.03 [Travel] X Revenue).

of Revenue

Variable Costs

as a Function = ($.05 [Office] X Units Sold) + ($.10 [Shipping] X Units Sold).

of Units Sold

Total

Selling= $93,750 + (.08 X Revenues) + ($.15 X Units Sold).

Expensesb. and c.Profit Variance Analysis

SalesFlexible

Master

ActualSellingPriceBudgetSalesBudget

(50,000ExpenseVari-(50,000Volume(65,000

Units)VariancesanceUnits)VarianceUnits)

Sales Revenue

$300,000

$25,000 F$275,000$82,500 U$357,500

Less Variable

Selling Costs

30,000$500 U

29,500a

8,850 F

38,350bContribution

Margin

$270,000$500 U$25,000 F$245,500$73,650 U$319,150Less Fixed

Selling Costs

80,000

13,750F

93,750 --

93,750Profits from

Selling

$190,000$13,250 F$25,000 F$ 151,750$73,650 U$225,400

a$29,500 = (.08 X $275,000) + ($.15 X 50,000) = $22,000 + $7,500.

b$38,350 = (.08 X $357,500) + ($.15 X 65,000) = $28,600 + $9,750.10.26 (Materials and labor variances.)

Price Efficiency

VarianceVariance

Materials $105,500 - ($.50 x 200,000 pds) $.50 X [200,000 pds - (97,810 units X 2 pds)]

= $5,500 U

= $2,190 U

Labor $905,000 - ($9.00 x 99,200 hrs) $9.00 X [99,200 hrs -(97,810 units X 1 hour)]

= $12,200 U

= $12,510 U10.27(Evaluate cause of materials and labor variances.)

The unfavorable materials variances resulted from paying more than anticipated for the materials ($0.53 actual price versus $0.50 standard price), and from using more pounds of material than anticipated (200,000 actual quantity used versus 195,620 standard quantity).

The unfavorable labor variances resulted from paying more than anticipated for labor ($9.12 actual rate versus $9.00 standard rate), and from using more labor hours than anticipated (99,200 actual hours versus 97,810 standard hours.)

10.28(Materials and labor variances.)

Price Efficiency

VarianceVariance

Materials $127,500 - ($2.50 x 49,000 pds) $2.50 X [49,000 pds - (48,000 batches x 1 pd)]

= $5,000 U

= $2,500 U

Labor $214,000 - ($3.00 x 70,000 hrs) $3.00 X [70,000 hrs - (48,000 batches X 1.5 hour)]

= $4,000 U

= $6,000 F10.29(Evaluate cause of materials and labor variances.)

The $7,500 unfavorable materials variance resulted from paying more than anticipated for the materials ($2.60 actual price versus $2.50 standard price), and from using more pounds of material than anticipated (49,000 actual quantity versus 48,000 standard quantity).

The $2,000 favorable labor variance resulted from using less labor hours than anticipated (70,000 actual hours versus 72,000 standard hours). However, the favorable variance resulting from this efficient use of labor hours was somewhat offset by the higher rate of pay than anticipated ($3.06 actual hourly rate versus $3.00 standard rate).

10.30(Solving for materials quantities and costs.)

Chemical Aa.Price variance is $.20 F per pound.

Total price variance is $42,000 F.

Pounds Purchased and Used = $42,000/$.20= 210,000.

b.Standard pounds allowed for 100,000 units (pools cleaned) = 200,000.

210,000 pounds 200,000 pounds = 10,000 pounds used over standard.

Efficiency variance = $40,000 U.

So, $40,000/10,00 pounds = $4.00 = the standard unit price.

Chemical B

a.Pounds Purchased and Used = $25,000/$.10= 250,000.

b.Standard Unit Price = $30,000/(250,000 220,000 pounds) = $1.00.Chemical C

a.Pounds Purchased and Used = $21,000/$.07 = 300,000.

b.Standard Unit Price = $48,000/(300,000 250,000 pounds) = $.96.

10.31(Maxums Sales; nonmanufacturing variances.)

Actual

Standard

Cost Price

EfficiencyCost

(AP X AQ) Variance(SP X AQ)aVariance(SP X SQ)bMay

$900,000$60,000 U$840,000$30,000 U$810,000June

1,000,000

40,000 U

960,000

120,000 F

1,080,000July

800,000

20,000 U

780,000

240,000 U

540,000

a$840,000 = $6 X 140,000 sales calls; $960,000 = $6 X 160,000 sales calls; $780,000 = $6 X 130,000 sales calls.b$810,000 = $6 X 9 calls per unit sold X 15,000 units sold; $1,080,000 = $6 X 9 calls per unit X 20,000 units sold; $540,000 = $6 X 9 calls per unit X 10,000 units sold.10.32(Labor and variable overhead variances.)

Price Efficiency

VarianceVariance

Direct Labor $43,400 ($3.00 x 14,000 hrs) $3.00 X (14,000 hrs 15,000 hrs)

= $1,400 U

= $3,000 F

Variable $22,900 ($1.50 x 14,000 hrs) $1.50 X (14,000 hrs 15,000 hrs)

Overhead= $1,900 U

= $1,500 F10.33(Overhead variances.)

ActualFlexible

CostsBudgetVariance

Variable$13,600 $3,500$3.00 X 3,500 hours $400 F

Overhead= $10,100

= $10,500

Fixed$3,500

$3,300$200 U

Overhead

10.34(Finding purchase price.)

ActualInput at

CostsPriceStandard Prices

(AP X AQ)Variance(SP X AQ)

AP X 1,600$3.60 X 1,600

= $5,760

> $240 F $860 U $0 $10,000 U C:

Where:P = Probability process is out of control;

B = Dollar amount of savings from correcting problem; and

C = Cost of investigation.

.35 X ($45,000 $20,000) = $8,750 > $7,000.

Yes, this process should be investigated since the value of the expected savings exceeds the cost of investigation.

10.39(Variances from activity-based costs.)

Flexible

Actual

Production

ActualPriceInputs atEfficiencyBudget

CostsVarianceStandard PricesVariance(Standard Allowed)

Quality

$.50 X 42,000 minutes

$.50 X 40,000 minutes

Testing$20,000

= $21,000

= $20,000

> $1,000 F $1,000 U $2,000 U $2,000 F $4,200 F $1,000 U C:

Where:P = Probability process is out of control;

B = Dollar amount of savings from correcting problem; and

C = Cost of investigation.

.30 X ($40,000 - $10,000)= $9,000

$9,000 > $7,000 cost.

This process should be investigated because the expected value of the savings is greater than the cost of investigation.

10.41 (Year to year analysis in a service organization.)

Analysis Period

Year 2Change in Operating

Profits due to Change

in Production Costs Change in Operating


in Gen. Admin. CostsChange in Operating


in Sales PriceChange in Operating


in Sales VolumeBaseline Period,

Year 1

Revenue$3,400,000$200,000Ub$600,000Fa$3,000,000

Professional salaries 1,850,000$ 50,000Ue 300,000Uc 1,500,000

Other variable costs 470,000 10,000Ff 80,000Ud 400,000

Contribution margin 1,080,000 $40,000U$200,000U 220,000F 1,100,000

General admin. 680,000$20,000Fg 700,000

Operating profits$ 400,000$40,000U$20,000F$200,000U$ 220,000F $ 400,000

a$120 sales price in Year 1 =.$3,000,000/25,000 hours

5,000 unit increase in volume between years 1 and 2 x $120 = $600,000

bSolve for the change in profits from change in sales price as follows:

$3,000,000 sales in Year 1 + $600,000 effect of favorable sales volume - $3,400,000 sales in Year 2 = $200,000 unfavorable change due to sales price.

c$60 variable cost per hour in Year 1 = $1,500,000/25,000

5,000 unit increase in volume x $60 = $300,000d$16 variable cost per hour in Year 1 = $400,000/25,000

5,000 unit increase in volume x $16 = $80,000

eSolve for the change in profits from the change in professional salaries as follows:

$1,500,000 professional salaries in Year 1 + $300,000 increase in professional salaries due to increased sales volume - $1,850,000 professional salaries in Year 2 = $50,000 unfavorable change due to change in professional salaries between Years 1 and 2.

fSolve for the change in profits from the change in other variable costs as follows:

$400,000 other variable costs in Year 1 + $80,000 increase in other variable costs due to increased sales volume - $470,000 other variable costs in Year 2 = $10,000 favorable change due to change in other variable costs between Years 1 and 2. gSolve for the change in profits from the change in general administrative costs by comparing the Year 1 and Year 2 costs: $700,000 - $680,000 = $20,000 favorable change.10.42 (Profit variance analysis in a service organization)

Profit Variance Analysis

(1)(2)(3)(4)(5)(6)(7)

Actual

Flexible

Master

(based on

Budget

Budget

actual

(based on

(based on

activity

GeneralSalesactual activitySalesa prediction

of 20,000ProductionAdministrativePriceof 22,000 Volumeof 20,000

hours)VariancesVariancesVariancehours)Variancehours)

Sales Revenue

$2,300,000 --

--

$100,000 F$2,200,000a$200,000 F$2,000,000

Less:

Professional Salaries

1,550,000$230,000 U --

--

1,320,000a

120,000 U

1,200,000

Other Variable Costs

250,000 30,000 U

220,000a

20,000 U


$ 500,000

$260,000 U

$100,000 F$ 660,000$ 60,000 F$ 600,000

Less:

General Administrative

Costs

400,000 --

--

400,000

--

400,000Operating Profits

$100,000$260,000 U$ -0-

$100,000 F$ 260,000$ 60,000 F$ 200,000

aIncrease master budget sales revenue and variable costs by the 10% increase in units, actual over budget

10.43 (Comprehensive problem.)Profit Variance Analysis

(1)(2)(3)(4)(5)(6)(7)

Actual

Flexible

Master

(based on

Budget

Budget

actual

(based on

(based on

activity

Marketing andSalesactual activitySalesa prediction

of 14,000ManufacturingAdministrativePriceof 14,000 Volumeof 16,000

units sold)VariancesVariancesVarianceunits sold)Varianceunits sold)

Sales Revenue

$308,000a --

--

$28,000F$280,000b$40,000 U$320,000

Less:

Variable Manufacturing

Costs

162,000$8,000 U --

--

154,000b

22,000 F

176,000

Variable Marketing and

Administrative Costs

17,000 --

$3,000 U --

14,000b

2,000 F


$129,000$8,000 U$3,000 U$28,000 F$112,000$16,000 U$128,000

Less:

Fixed Manufacturing

Costs

42,000

2,000 U --

--

40,000 --

40,000

Fixed Marketing and


68,000 --

2,000 F --

70,000 --


$19,000$10,000 U$1,000 U$28,000 F$2,000$16,000 U$18,000

a$308,000 = $22 X 14,000 units.

bDecrease master budget sales revenue and variable costs by the 12.5%decrease in actual units from budgeted units.10.44 (Comprehensive problem.)

Profit Variance Analysis

(1)(2)(3)(4)(5)(6)(7)

Actual

Flexible

Master

(based on

Budget

Budget

actual

(based on

(based on

activity

Marketing andSalesactual activitySalesa prediction

of 20,000ManufacturingAdministrativePriceof 20,000 Volumeof 18,000

units sold)VariancesVariancesVarianceunits sold)Varianceunits sold)

Sales Revenue

$420,000a --

--

$20,000F$400,000$40,000 F$360,000

Less:

Variable Manufacturing

Costs

230,880$30,880 U --

--

200,000b

20,000 U

180,000

Variable Marketing and


22,000 --

$2,000 U -- 20,000b

2,000 U


$167,120$30,880 U $2,000 U$20,000 F$180,000 $18,000 F $ 162,000

Less:

Fixed Manufacturing

Costs

82,000

2,000 U --

--

80,000 --

80,000

Fixed Marketing and


18,000 --

2,000 F --

20,000 --


$67,120$32,880 U $ 0 $20,000 F$80,000$18,000 F$62,000

a$420,000 = $21 X 20,000 units.

10.45 (Finding missing data.)

a.750 Units.

b.$65U.

c.$135U = EQ \f($2\,025,750 units) X 50 units (= 800 in master budget 750 in flexible budget).

d.$2,160 (= $2,025/750 units) X 800 unitse.$570 (= EQ \f($38,50 units) X 750 units).

f.$510 (= $570 $60).

g.$608 (= EQ \f($38,50 units) X 800 units).

h.$200 (= $1,960 $510 $1,250).

i.$202.5 (= EQ \f($216,800 units) X 750 units).

j.$2.5F (= $202.5 $200).

k.$13.5F (= $216 $202.5).

l.$60F.

m.$2.5F.

n.$65U.

o.$1,252.5 (= $2,025 $570 $202.5).

p.$83.5U (= $135U $38F $13.5F).

q. $1,336 (= $2,160 $608 $216).

10.46 (Finding missing data.)

a.12,000 (= 10,000 units in master budget + 2,000 units favorable sales volume).

b.12,000.

c.$20,000 (= $150,000 $80,000 $50,000).

d.$25,000 (= $60,000 $15,000 $20,000).

e.$25,000.

f.$15,000.

g.$10,000 (= $50,000 $25,000 $15,000).

h.$180,000 (= $60,000 + $24,000 + $96,000).

i.$198,000 (= $180,000 + $18,000).

j.$30,000F (= $180,000 $150,000).

k.$16,000U (= $96,000 $80,000).

l.$10,000F (= $60,000 $50,000).

m.$10,000F.

n.$105,000 (= $96,000 + $9,000).

o.$2,400F (= $24,000 $21,600).

p.$71,400 (= $198,000 $105,000 $21,600).

q.$23,000 (= $25,000 $2,000).

r.$11,400F (= $18,000 $9,000 + $2,400).

s.$30,400 (= $71,400 $23,000 $18,000).

t.$3,000U (= $18,000 $15,000).

u.$10,400F (= $30,400 $20,000).

10.47 (Assigning responsibility.)

a. The raw materials variance appears to be the result of poor quality inputs. In assigning responsibility, therefore, management must discern the reason why poor quality inputs were used. The poor quality raw materials could be the responsibility of any one of a number of areas. It may have been due to poor performance in the purchasing department, or to poor production planning by the production supervisor. Possibly, management was responsible by placing demands on the Assembly Division that required an emergency purchase of materials that did not meet normal quality standards. Finally, the poor input quality may have been the result of factors outside the control of any responsibility center in the firm, such as a general decline in the quality of a particular raw material.

b. The idle time in the Finishing Division was the result of fewer units than expected being transferred out of the Assembling Division, which in turn was the result of poor quality raw materials input. In such a case ultimate responsibility should be placed on the center responsible for the poor quality raw materials. Management may, however, feel that the idle labor hours could have been used productively in other areas. In such a case, responsibility would be placed on the supervisor of the Finishing Division.

10.48 (Controls over planning function.)

It is virtually impossible to design a quantitative measure that captures the relevant aspects of performing the planning activity. Alternative performance evaluation procedures must therefore be used.

One approach is to have either the external or internal auditors conduct a management audit of the planning activity. Standards might be set relative to the use of appropriate statistical planning tools, the participation of line and staff personnel in generating inputs for the planning models, and the effective communication of budgeted amounts to the employees affected by the budgets. Statistical consultants could be used to evaluate the appropriateness of the statistical tools used. Line and staff personnel could be interviewed to determine the extent they participated in the planning process and their reaction to the activity of the planning department. The management audit would also evaluate the qualifications of the personnel in the planning department and the quality of continued training and supervision they receive. Given the cost of such a management audit, it would probably be conducted every two or three years rather than annually.

10.49(Computing variances for marketing costs.)

Flexible

Master

Actual

BudgetSalesBudget

$2,700,000Cost$2,700,000Volume$3,240,000b

SalesVarianceaSalesVarianceSales

Sales Commissionsc

$270,000$ -0-

$270,000$54,000 F$324,000

Cost of Sales

810,000 -0-

810,000d

162,000 F

972,000

Telephone Time

32,200

5,200 U

27,000d

5,400 F

32,400

Delivery Services

161,100

900 F

162,000d

32,400 F

194,400

Uncollectible Accounts

121,500 -0-

121,500d

24,300 F

145,800

Other Variable Costs

112,700

18,200 U

94,500d

18,900 F

113,400

Fixed Costs

409,000

2,500 F

411,500 -0-

411,500

Total Costs

$1,916,500$20,000 U$1,896,500$297,000 F$2,193,500

aDifference between actual and flexible budget.

b$450 X 180 hours X 40 callers = $3,240,000.

c10% of the sales figure.

dThe remaining variable costscost of sales through other variable costsequal the master budget amount $2,700,000/$3,240,000.

For example, $810,000 = $972,000 $2,700,000/$3,240,000.

.

10.50(Analysis of cost reports [CMA adapted].)

Three possible changes that could make the cost information more meaningful are:

1.Use a flexible budget, rather than a static budget, for measuring performance. This would enable the reporting process to recognize changed conditions, such as volume changes, and fixed versus variable costs.

2.Separate variable costs from fixed costs. Also, identify those elements of the report for which the production manager is directly responsible.

3.Separate excess cost into price and efficiency variances for variable costs.

10.51(Change of policy to improve productivity [CMA adapted].)

Improved profit margins will not be achieved. The production manager fails to understand that by tightening the standards (all else equal) variances will be negative. Simply lowering the standard time allowed per operation does not reduce the cost of manufacturing the product, unless an actual reduction in the processing time occurs. The tightening of the standards will probably decrease morale and motivation resulting in increased processing time. This will decrease productivity and increase the costs of production.

Currently the assembly personnel rarely complete the operations in less time than the standard allows. Assuming that the assembly department is working efficiently, it is not likely that the tightening of the standards (reducing the allowed time per operation) will result in increased productivity. More likely, the assembly personnel will resent having the standards tightened without their input. They currently view the standards as achievable, since they do achieve them occasionally. Tightening the standards will result in decreased motivation and morale, as they will be striving for what they will view as an unrealistic standard.

10.52(Ethics and standard costs [CMA adapted].)

Joes behavior is unethical. The unofficial CMA answer to this question cites violations in the areas of competence, integrity, and objectivity with regard to the Standards of Ethical Conduct for Management Accountants. Basically, Joe has an obligation to communicate information fairly and objectively. He must prepare complete and clear reports and recommendations. By misrepresenting the costs of the strawberries, he is hoping to benefit his friends strawberry farm at the expense of Western Farms. Joe should avoid such conflicts of interest and advise all parties of potential conflicts. He should not be setting the standards and mandating from whom Western should purchase strawberries.

10.53(Hospital variances.)

Flexible

Actual

Inputs at

Production

CostsPriceStandard PricesEfficiencyBudget

(AP X AQ)Variance(SP X AQ)Variance(SP X SQ)

Material X$40 X 8,000 units

$50 X 8,000 units

$50 X (5 X 1,500 units)

= $320,000

= $400,000

= $375,000

> $80,000 F $25,000 U $14,000 U $75,000 F $600 U $1,000 F $200 U $1,200 F $80,000 F $33,333 U $8,333 F $14,000 U $50,000 F $25,000 F $66,000 F $16,667 F $33,333 F 600 U $143 F 857 F 200 U 86 U 1,286 F 800 U 57 F 2,143 F $76 U $25 U 0 $500 U $250 U $750 U $500 U