ACC 207 Final Project Memorandum to Management Maria L. Schiro-Evans May 29, 2016 DATE: May 29, 2016 TO: Managers for the Bird Feeder Division FROM: Maria Schiro-Evans, Cost Accountant RE: Quantitative Analysis Results and Recommendations Initial analysis: An analysis of the Bird Feeder Division has been requested due to unanticipated budget variances. Budgeted number of units is 50,000 with $21.00 sales price and variable cost per unit of $15.56. The contribution margin is $5.44. The actual number of units was 47,000 with variable cost per unit of $17.47 and contribution margin of $3.63. The actual number of units was less but the contribution margin was lower than the budgeted one. The breakeven point is 33,272 units and that goal was achieved but 52,479 units was needed to make the profit goal of $10,000. Even though the breakeven point was surpassed, less units were made but cost more than budgeted for 50,000 units. In creating and analyzing a Flexible Budget, it is clear that the original Static Budget was too conservative in its estimation of costs. Two of the variable direct costs that have large, negative variances are Direct Materials – Cedar and Direct Manufacturing Labor. The fact that less than budgeted units were made yet actual costs were more, especially for Cedar materials and direct labor, points to possible mistakes being made by labor personnel with the materials so more materials had to be used. The prices for the cedar materials could also have increased from their historical price, which management may have used in calculating the cost for the static budget or circumstances may have changed at the actual time of purchase in terms of discounts or volume. The Price Variance for the cedar materials was negative by $22,560, which makes sense when you take in account that more material than budgeted for was used in making the bird feeders. The cedar materials also had a negative efficiency variance of $14,100 which means more material per unit was used than was budgeted for and that materials were not used efficiently by personnel per unit. All three Direct Costs have negative efficiency variances with labor being the largest at $56,400. These negative efficiency variances possibly point to inexperienced personnel working on the manufacturing of the bird feeders that used more material than expected because of waste or mistakes and also needing more time to complete each bird feeder due to mistakes or problems. The fact that less bird feeders were produced only reinforces the idea that materials and labor were not used effectively in production. The Units Sold Category has a negative and unfavorable Sales Volume variance due to only 47,000 units sold when 50,000 was the budgeted amount. This affected Revenues and Gross Margin negatively. Revenue was favorable when compared to the flexible budget but with most actual costs being more than the flexible budget cost.

1. ACC 207 Final Project
Memorandum to Management
Maria L. Schiro-Evans
May 29, 2016
DATE: May 29, 2016
TO: Managers for the Bird Feeder Division
FROM: Maria Schiro-Evans, Cost Accountant
RE: Quantitative Analysis Results and Recommendations
Initial analysis:
An analysis of the Bird Feeder Division has been requested due
to unanticipated budget variances. Budgeted number of units is
50,000 with $21.00 sales price and variable cost per unit of
$15.56. The contribution margin is $5.44. The actual number
of units was 47,000 with variable cost per unit of $17.47 and
contribution margin of $3.63. The actual number of units was
less but the contribution margin was lower than the budgeted
one. The breakeven point is 33,272 units and that goal was
achieved but 52,479 units was needed to make the profit goal of

2. $10,000. Even though the breakeven point was surpassed, less
units were made but cost more than budgeted for 50,000 units.
In creating and analyzing a Flexible Budget, it is clear that the
original Static Budget was too conservative in its estimation of
costs. Two of the variable direct costs that have large, negative
variances are Direct Materials – Cedar and Direct
Manufacturing Labor. The fact that less than budgeted units
were made yet actual costs were more, especially for Cedar
materials and direct labor, points to possible mistakes being
made by labor personnel with the materials so more materials
had to be used. The prices for the cedar materials could also
have increased from their historical price, which management
may have used in calculating the cost for the static budget or
circumstances may have changed at the actual time of purchase
in terms of discounts or volume. The Price Variance for the
cedar materials was negative by $22,560, which makes sense
when you take in account that more material than budgeted for
was used in making the bird feeders. The cedar materials also
had a negative efficiency variance of $14,100 which means
more material per unit was used than was budgeted for and that
materials were not used efficiently by personnel per unit. All
three Direct Costs have negative efficiency variances with labor
being the largest at $56,400. These negative efficiency
variances possibly point to inexperienced personnel working on
the manufacturing of the bird feeders that used more material
than expected because of waste or mistakes and also needing
more time to complete each bird feeder due to mistakes or
problems. The fact that less bird feeders were produced only
reinforces the idea that materials and labor were not used
effectively in production.
The Units Sold Category has a negative and unfavorable Sales
Volume variance due to only 47,000 units sold when 50,000 was
the budgeted amount. This affected Revenues and Gross Margin
negatively. Revenue was favorable when compared to the
flexible budget but with most actual costs being more than the
flexible budget costs amounts, the gross margin ended up

3. unfavorable by $84,976.00. The sales difference was down by
3,000 units but all actual costs, except for Variable
Manufacturing Overhead were higher even though you would
expect lower costs with lower output.
Budgeting Process:
The budgeted amounts for the Bird Feeder division are very
conservative, giving the large amount of unfavorable variances
in almost every category. Historical and current market data
need to be evaluated in depth to recognize fluctuations or trends
in material pricing or labor rates. Investigating if lower prices
for material could be paid if materials are purchased at a
different time of the year than in the past or in higher or lower
quantities will help the budgeting process become more
accurate. An evaluation of current manufacturing personnel’s
experience, training and past performance history could help
determine if the unfavorable efficiency variance in direct labor
was due to unrealistic hours per unit estimate or to
inexperienced and inefficient personnel. If a change in
machinery or processing occurred between when the budget was
made and the bird feeder units were produced, an evaluation
needs to be made to determine if additional training of
personnel was needed and if being unfamiliar with the machines
or process could have caused the mistakes or problems that used
more material and more hours needed to make each unit. If the
bird feeder units are produced in a factory with other items, an
analysis of the factory fixed costs and administrative costs
allocated to the bird feeder division should be done to ensure all
costs are allocated equitably among all divisions in line with
each division’s output. Verifying, evaluating and recalculating
costs, if necessary, should help management develop a more
accurate budget and process for the bird feeder division.
Costing Method:
The costing method currently being used, process costing, is the
simplest and most cost-effective for the Bird Feeder Division.

4. One product is being manufactured so costs that are used to
produce the bird feeders are easy to allocate. Since direct costs
have a cause and effect relationship with the product, the direct
materials of Cedar and Plastic and direct manufacturing labor
are the direct costs allocated to the bird feeders. Shipping costs
and sales commissions are directly calculated based on each
unit sold, not as salary or a bundled cost for shipping rates, so
they could be considered direct costs also.
Recommendations:
Efficiency in both material usage and labor hours per unit need
to be investigated, analyzed and corrected. Less units than
budgeted were produced yet materials cost and labor costs were
higher than budgeted by a large amount. DM – Cedar has a
negative efficiency variance of $14,100, DM – Plastic is $3,525
and DM – Labor is $56,400. These variances show that more
material per unit was used and more labor hours per unit was
used and that personnel were inefficient in both using materials
and their effort in production. The steps of the actual
production process need to be looked at to determine where the
inefficiencies of material and labor started to be able to identify
which personnel were working on those steps for evaluation
purposes. Evaluation of the knowledge, training and
experience of personnel in production of the bird feeders needs
to be done as soon as possible to determine how to correct the
issues found. Additional training could be needed on the
machines or in the actual process itself to correct mistakes
being made. Hiring more experienced personnel could also be
useful in their being able to mentor the less experienced
workers to improve efficiency overall.
A sensitive issue that may need to be determined is if the
negative labor variance could be caused by some workers that
are trained correctly but chose to work slower than necessary to
receive more hours. This may not be one of the reasons for the
negative labor variance but it should not be overlooked either.

5. Any investigation into this behavior needs to be handled in a
professional yet sensitive way to avoid any false accusations or
disputes.
The Price Variance for DM – Cedar was negative by $22,560
and suggests that a price change may have occurred between
when the budget was created and the actual purchase of the
cedar materials. Thorough research into the market for cedar
materials, its availability and trends of high demand should be
done for the budgeting process and verification that all
discounts were given and volume purchases were made. A price
increase or period of high demand, and therefore higher prices,
that could have been predicted, would have been accounted for
in the budget or steps could have been taken to purchase cedar
at a time of lower demand.
Factory fixed costs and administrative costs need to be
evaluated to determine that the Bird Feeder Division is being
allocated the correct amounts of those costs for its usage and
output. If one division in a company is more profitable than
another, managers may allocate more indirect costs to the
profitable division to make an unprofitable division appear
profitable. Having a previously unprofitable division suddenly
become profitable will make a manager look good to upper
management. The allocation of factory fixed costs and
administrative costs may be equitable and fair but it is another
place that needs to be checked for any irregularities.
By taking the steps outlined above, a more accurate budget
should be able to be written and inefficiencies by personnel
labor and mishandling of materials should be addressed in a
positive manner. A more accurate budget and fixing of known
problems with production should produce a more profitable
division in the future.

6. References
https://www.sec.gov/Archives/edgar/data/1288776/00011931251
1032930/d10k.htm
Fast Answers. (n.d.). Retrieved March 24, 2016, from
http://www.sec.gov/answers/form8k.htm
SEC Form S-11 Definition | Investopedia. (2008). Retrieved
March 24, 2016, from http://www.investopedia.com/terms/s/sec-
form-s-11.asp
Horngren, C. T., Datar, S. M., & Rajan, M. V. (2015). Cost
accounting: A managerial emphasis (15th ed.). Upper Saddle
River, NJ: Pearson.
http://www.accountingcoach.com/break-even-
point/explanation/2
http://smallbusiness.chron.com/contribution-margin-percent-
17724.html
http://smallbusiness.chron.com/things-could-increase-decrease-
contribution-margin-ratio-66145.html

7. Milestone One, Part I – Product and Period Costs

8. Product Costs:
Materials - Cedar
Materials - Plastic
Factory Worker Labor
Materials - Indirect
Factory Depreciation

9. Factory Utilities
Factory Maintenance and Repairs
Period Costs:
Shipping ($2.25/each)

10. Sales Commissions ($2.00/unit sold)
Office Rent
Advertising
Liability Insurance
Office Depreciation
Office Salaries

11. Product costs are all the materials, labor and other costs that
can be directly connected to a product being created including
indirect costs that are incurred in making the specific product.
These costs for the product are assets on the balance sheet and
when the product is sold are counted in Costs of Goods sold.
Period costs are supporting costs and cannot be directly related
to the product being made. Period costs are expensed in the
period they are incurred and are not on the balance sheet.
Note: The other pages of the Student Workbook I could not
copy into this Word document. I have attached them separately.
ACC 207 Final Project Milestone Two Analysis
In calculating and analyzing the Static Budget against the
Flexible Budget and Actual Costs, it is clear that the Static
Budget was too conservative in its estimation of costs. Two of
the largest unfavorable, negative variances is concerning Direct

12. Materials – Cedar and Direct Manufacturing Labor. Those two
costs, along with Direct Materials – Plastic also had a negative
Efficiency Variance. The cost of the Cedar Materials was much
greater than budgeted for, which could be attributed to prices
increasing from their historical cost when the material was
actually purchased or circumstances changing in terms of
volume or discounts that were unforeseen when compiling the
budget amounts.
The Sales Volume Variance is negative and unfavorable in
the Units Sold Category since only 47,000 units were sold when
50,000 was budgeted for. The 3,000 less units sold affected
Revenues and the Gross Margin in a negative way. When
comparing the Flexible Budget to Actual amounts, Revenue was
favorable but with most of the other costs being unfavorable,
Gross Margin was also unfavorable.
The Price Variance for Direct Material – Plastic and for
Direct Manufacturing – Labor was positive while the Price
Variance for Direct Material – Cedar was negative by $22,560,
which ties in with the actual cost of the Cedar being so much
more than budgeted for. DM – Cedar also has a large negative
Efficiency Variance of $14,100 which shows that more material
was used per unit than was budgeted for and that the material
was not utilized in an efficient manner by the workers, either
from inexperience or waste. Direct Manufacturing – Labor also
had a large negative Efficiency Variance which could also point
toward inexperienced workers that worked more hours than
budgeted or other reasons that more labor was needed to
complete less units. It seems that efficiency is a major item
that needs to be addressed and corrected.
Variable Manufacturing Overhead was marginal in their
Spending Variance, which was negative by under $300, and
Efficiency Variance, which was positive by $470.00. Direct
costs and labor seem to be the trouble areas that need to be
analyzed to find what needs to corrected. The information and
process used to compile the budget probably needs to be
improved by using more sources for costs of materials and

13. market share and in evaluating training and experience of
workers to avoid such high efficiency issues. It is possible that
if the workers were evaluated on their use and knowledge of the
machines that are used to make the bird feeders, some of the
negative efficiency numbers could have been eliminated with
training or hiring more experienced workers.
Jamie Amelio
Acct 207 Milestone 3

14. Q1. Identify the cost allocation system that would benefit this
company most .Justify your reasons.
Process costing system is also known as a traditional costing
method of allocation of cost. While activity based costing
method is a contemporary approach to cost allocation . Process
costing is used when same or identical units of products are
produced on a large level. Process costing is used highly in
businesses which are producing homogenous products. In
process costing the cost of the product is assigned or analyzed
at each stage of production process .While in activity based
costing all the product related activities are considered and cost
are allocated to each activity according to the basis of actual
consumption of cost in each activity.
Activity based costing is more efficient to use:
· If business is not producing homogenous product
· If business is producing more customized products
· Increase efficiency of business processes
· as it reduces the level of resources wastage a decrease the cost
in incurred to production process by assigning cost according to
the level of resources consumed.
Q2.Does this cost allocation method meet management planning
and control goals? Explain
If management uses activity-based costing method, then it is
more useful for this business. Activity based costing process
bring full control on the resources of the business. Management
usually plans to bring most customized and highly utilized
products for their customers. In addition to this management,
focus to reduce the level of cost incurred during the production
of products . In current era the demand from customers are
increasing day by day and level of resources are also
decreasing. As business is going to open a new bird feeder
division which involves a variety of seeds and other feed items
related to various birds. Management wants to bring a high level
of profit and high customer retention rate with less input (level
of resources used by business).
Activity based costing will help the business by its costing tools

15. and techniques through which management of a business can
produce more customized products with less cost of resources as
only these resources will include which are actually consumer
not on an average basis.
Q3. What are Ethical Implications that should be considered
while implication of this cost allocation system?
The implication of activity based costing system involve in
some potential ethical issues towards business which are
following:
Not consider the non-value added activities of business
Selection of an inappropriate driver of cost to get calculations
of cost.
Activity-based Costing is usually eliminated a vendor or
customer
Activity based costing does not include the cost related to
society and environmental events
Activity-based Costing transfer the level of cost to cost plus
contracts from contracts of fixed price.
Misinterpretation or misclassification of various activities in
cost allocation process.
Q4. What are Ethical implications of indirect cost versus direct
cost? What consideration should be made while selecting one of
these two?
Direct cost refers to the cost which is incurred for production of
a specific product or services usually it is also known as a
variable cost which changes from product to product and
remains same in each unit of a product like direct material
,labor cost, etc. While indirect cost is those costs which
incurred by business all the time even in the case of no
production. Indirect cost is also known as fixed cost like rent,
bills, etc. Both of these costs combine formed Total cost of a
product.
Various points are considered while the selection of these two
types of cost but the most famous is to consider the level of
production activities and their happening events. These two
remain to exist in business.

16. The above-mentioned table indicates that outcomes gained by
business by use of process costing with the replacement of this
to activity based costing business will get the favorable level
of gross margins.
Part I - Product vs Period CostMilestone One, Part IProduct
Costs:Materials - CedarMaterials - PlasticFactory Worker
LaborMaterials - IndirectFactory DepreciationFactory
UtilitiesFactory Maintenance and RepairsPeriod Costs:Shipping
($2.25/each)Sales Commissions ($2.00/unit sold)Office
RentAdvertisingLiability InsuranceOffice DepreciationOffice
SalariesProduct costs are all the materials, labor and other costs
that can be directly connected to a product being created
including indirect costs that are incurred in making the specific
product. These costs for the product are assets on the balance
sheet and when the product is sold are counted in Costs of
Goods sold.Period costs are supporting costs and can not be
directly related to the product being made. Period costs are
expensed in the period they are incurred and are not on the
balance sheet.
Part I - CostsMilestone One, Part IIUse Table I on the MDE
Manufacturing Budget to complete your
calculations.TotalsTotalsBudgetActualSales Price per Unit$
2121Variable CostsMaterials - Cedar225,000248,160Materials -
Plastic37,50037,741Factory Worker
Labor300,000332,760Materials - Indirect3,0002,585Shipping
($2.25/ea)112,500105,75047,000 unitsSales Commissions
($2/unit sold)100,00094,000Variable Cost per
Unit1617Contribution Margin54Fixed CostsFactory
Depreciation78,00078,000Factory Utilities12,00012,000Factory
Maintenance and Repairs5,0004,500Office
Rent12,00012,000Advertising20,00020,000Liability
Insurance5,0005,000Office Depreciation1,0001,000Office

17. Salaries48,00048,000Total Fixed Costs181,000180,500Using
Budgeted AmountsBreakeven Point - Fixed
Costs181,000Breakeven Point - 36,200Contribution Margin$
5.00Using Actual Amounts190,500Units at Current Sales Price -
47,625 + 10,000 profit4.001,000,125Using actual amountsNew
Contribution Margin + 10,000 profitCurrent Variable CostsNew
Sales Price
Part II - Budget ModelMilestone Two, Part IUse Tables I
through IV on the MDE Manufacturing Budget to complete your
calculations. Refer to Exhibit 7-2 on page 253 of the textBudget
ModelFrom Flexible Budget Calculations SheetActualFlexible
Budget VarianceFavorable/ UnfavorableFlexible BudgetSales
Volume VarianceFavorable/ UnfavorableStatic BudgetUnits
Sold47,000047,0003,000Unfavorable50,000Revenues$991,700$
4,700Favorable$987,000($63,000)Unfavorable$1,050,000Variab
le Costs DM-
Plastic37,741($2,491)Unfavorable35,250$2,250Favorable37,500
DM-
Cedar248,160($36,660)Unfavorable211,500$13,500Favorable22
5,000 Direct Manuf.
Labor332,760($50,760)Unfavorable282,000$18,000Favorable30
0,000 Variable Manuf.
Overhead2,585$235Favorable2,820$180Favorable3,000 Total
Variable
Costs621,246($89,676)Unfavorable531,570$33,930Favorable56
5,500Fixed Manuf. Overhead95,00095,00095,000Total
Costs716,246($89,676)Unfavorable626,570$39,630Favorable66
0,500Gross
Margin275,454($84,976)Unfavorable360,430($29,070)Unfavora
ble389,500
Part II - Variance AnalysisMilestone Two, Part IIUse the
variance supporting calculation tab to complete your
calculations.Price VarianceEfficiency VarianceDirect Materials
- Cedar-22,560(14,100)Direct Materials -
Plastic1034(3,525)Direct Labor5,640(56,400)Spending
VarianceEfficiency VarianceVariable Manufacturing

18. Overhead(235.00)470
Flexible Budget CalculationsBudgeted UnitActual
VolumeFlexible BudgetAmountsAmountRevenues$
21.0047,000$987,000Variable Costs DM-
Cedar4.5047,000211,500 DM-Plastic0.7547,00035,250 Direct
Manuf. Labor6.0047,000282,000 Variable Manuf.
Overhead0.0647,0002,820 Total Variable Manufacturing
Costs531,570Fixed Manufacturing Overhead95,000Total
Manufacturing Costs626,570Gross Margin$360,430
Variance Supporting CalculationUse Tables III and IV on the
MDE Manufacturing Budget to complete your calculations.
Development of Price and Efficiency Variances -
CalculationsActual Feet per UnitActual UnitsActual Feet
UsedActual CostActual Cost per Unit DM-
Plastic147,00051,70037,741$ 0.80 DM-
Cedar347,000150,400248,160$ 5.28Actual Labor Cost per
HourActual Labor CostsActual Labor HoursActual UnitsActual
Labor Hours per Unit Direct Manuf. Labor$ 11.80$
332,76028,20047,0000.60Actual Costs Incurred
(Actual Input Qty. × Actual Price)
Actual Input Qty. × Budgeted Price
Flexible Budget
(Budgeted Input
Qty. Allowed for
Actual Output
× Budgeted Price)
Actual UnitsActual Feet per UnitActual Price per OunceActual
UnitsActual Feet per UnitBudgeted Cost per OunceActual
UnitsBudgeted Feet per UnitBudgeted Cost per OunceDirect
Material Plastic47,0001$ 0.7347,0001$ 0.7547,0001$ 0.75$
37,741$ 38,775$ 35,250$ 1,034$ (3,525)Price
VarianceEfficiency VarianceDirect Material Cedar47,0003$
1.6547,0003$ 1.5047,0003$ 1.50$ 248,160$ 225,600$
211,500$ (22,560)$ (14,100)Price VarianceEfficiency
VarianceActual UnitsActual Hours per UnitActual Cost per
HourActual UnitsActual Hours per UnitBudgeted Cost per

19. HourActual UnitsBudgeted Hours per UnitBudgeted Cost per
HourDirect Manufacturing Labor47,000$ 0.60$ 11.8047,000$
0.60$ 12.0047,0000.5$ 12.00$ 332,760$ 338,400$
282,000$ 5,640$ (56,400)Price VarianceEfficiency
VarianceActual CostsActual Input Qty. × Budgeted Price
Flexible Budget
(Budgeted Input
Qty. Allowed for
Actual Output
× Budgeted Price)Actual CostsActual UnitsActual Feet per
UnitBudgeted Cost per FootActual UnitsBudgeted Feet per
UnitBudgeted Cost per FootVariable manufacturing overhead$
2,58547,0000.25$ 0.2047,0000.3$ 0.20$ 2,585$ 2,350$
2,820$ (235)$ 470Spending VarianceEfficiency Variance
ACC 207 MDE Manufacturing Budget: Bird Feeder
I. Sales and Manufacturing Expenses: Budget and Actual (2014)
You will use this table to complete Milestones One and Two.
Budget ($)
Actual ($)
Sales
1,050,000
991,700
Expenses
Materials – Cedar

20. 225,000
248,160
Materials – Plastic
37,500
37,741
Factory Worker Labor
300,000
332,760
Materials – Indirect
3,000
2,585
Factory Depreciation
78,000
78,000
Factory Utilities
12,000
12,000
Factory Maintenance and Repairs
5,000
4,500
Shipping ($2.25/each)
112,500
105,750
Sales Commissions ($2.00/unit sold)
100,000
94,000
Office Rent
12,000
12,000
Advertising
20,000
20,000
Liability insurance
5,000
5,000
Office Depreciation

21. 1,000
1,000
Office Salaries
48,000
48,000
Total Expenses
959,000
1,001,496
II. Contribution Margin: Static Budget and Actual Results
(2014)
You will use this table to complete Milestone Two.
Actual Results
Static Budget Amount
Units Sold
47,000
50,000
Revenues ($)
991,700
1,050,000
Manufacturing Costs ($)
Variable
621,246
565,500

22. Fixed
94,500
95,000
Gross Margin
275,954
389,500
III. Standard Variable Manufacturing Costs (2014)
You will use this table to complete Milestone Two.
Static Budget Costs
Standard Input
Direct Materials: Cedar
225,000
3.0 ft/unit
Direct Materials: Plastic
37,500
1.0 ft/unit
Direct Manufacturing Labor
300,000
0.5 hrs/unit
Variable Manufacturing Overhead
3,000
0.3 ft/unit
IV. Actual Variable Manufacturing Costs (2014)

23. You will use this table to complete Milestone Two.
Actual Costs
Actual Input
Direct Materials: Cedar
248,160
3.2 ft/unit
Direct Materials: Plastic
37,741
1.1 ft/unit
Direct Manufacturing: Labor ($)
332,760
.60 hr/unit
Variable Manufacturing Overhead
2,585
0.25 ft/unit
Part I - Product vs Period CostMilestone One, Part IProduct
CostsN/BMaterials- cedarproducts costsMaterials-
plasticproducts costs are those costs that go into the
determination of costs of goods manufactured during Factory
worker laborthe manufacturing process as either direct materials
or labor and as manufacturing overheads rather factory
Materials -indirectoverheads.These costs form part of the cost
of the ultimate product produced. They majroly fall into three
categoriesFactory depreciationdirect materialsFactory
utilitiesdirect laborFactory maintenance and repairsfactory
overheadsPeriod Costsperiods costsShipping($2.25/each)Sales

24. commission ($2.00/unit sold)Are costs that do not go into the
determination of the cost of good manufactured during the
manufacturing processOffice rentThey are expensed in the
period in which they are incurred and as such do not form part
of the product costs.Advertisingthese costs fall into the
following categoriesLiability Insuranceselling and
administrative costsOffice depreciationOffice salaries
Part I - CostsMilestone One, Part IIUse Table I on the MDE
Manufacturing Budget to complete your
calculations.50,000TotalsTotalsUnitsBudgetActualSales Price
per Unit$ 2124Variable CostsMaterials -
Cedar225,000248,160Materials - Plastic37,50037,741Factory
Worker Labor300,000332,760Materials -
Indirect3,0002,585Shipping ($2.25/ea)112,500105,750Sales
Commissions ($2/unit sold)100,00094,000Variable Cost per
Unit1617Contribution Margin54Fixed CostsFactory
Depreciation78,00078,000Factory Utilities12,00012,000Factory
Maintenance and Repairs5,0004,500Office
Rent12,00012,000Advertising20,00020,000Liability
Insurance5,0005,000Office Depreciation1,0001,000Office
Salaries48,00048,000Total Fixed Costs181,000180,500Using
Budgeted AmountsBreakeven Point - Fixed
Costs181,000Breakeven Point - 36,200Contribution
Margin5.00Using Actual AmountsTotal Actual fixed
costs180,500Units at Current Sales Price45125 + 10,000
profitcontribution margin4.00Using actual amountsActual fixed
costs+profit190,50047625.00New Contribution Margin4.05 +
10,000 profitcontribution margin4Current Variable
Costs17.47New Sales Price21.52
Part II - Budget ModelMilestone Two, Part IUse Tables I
through IV on the MDE Manufacturing Budget to complete your
calculations. Refer to Exhibit 7-2 on page 253 of the textBudget
ModelFrom Flexible Budget Calculations SheetActualFlexible
Budget VarianceFavorable/ UnfavorableFlexible BudgetSales
Volume VarianceFavorable/ UnfavorableStatic BudgetUnits
Sold47,00047,00050,000Revenues$991,700$4,700Favorable$98

25. 7,000($63,000)Unfavorable$1,050,000Variable Costs DM-
Plastic$37,741.00$2,491.00Favorable$35,250.00($2,250.00)Unf
avorable$37,500.00 DM-
Cedar$248,160.00$36,660.00Favorable$211,500.00($13,500.00)
Unfavorable$225,000.00 Direct Manuf.
Labor$332,760.00($50,760.00)Unfavorable$554,600.00$254,60
0.00Favorable$300,000.00 Variable Manuf.
Overhead$2,585.00$235.00Favorable$11,750.00$8,750.00Favor
able$3,000.00 Total Variable
Costs$621,246.00($191,854.00)Unfavorable$813,100.00$247,60
0.00Favorable$565,500.00Fixed Manuf.
Overhead$95,000.00($500.00)Unfavorable$95,000.00 $
-$95,000.00Total
Costs$716,246.00($192,354.00)Unfavorable$908,100.00$247,60
0.00Favorable$660,500.00Gross
Margin$275,454.00$197,054.00Favorable$78,900.00($310,600.
00)Unfavorable$389,500.00
Part II - Variance AnalysisMilestone Two, Part IIUse the
variance supporting calculation tab to complete your
calculations.Price VarianceEfficiency VarianceDirect Materials
- Cedar-22,560(14,100)Direct Materials -
Plastic1034(3,525)Direct Labor5,640(56,400)Spending
VarianceEfficiency VarianceVariable Manufacturing
Overhead(235.00)470
Flexible Budget CalculationsBudgeted UnitActual
VolumeFlexible BudgetAmountsAmountRevenues$
21.0047,000$987,000Variable Costs DM-
Plastic$0.7547,00035,250 DM-Cedar$4.5047,000211,500
Direct Manuf. Labor6.0047,000282,000 Variable Manuf.
Overhead0.0647,0002,820 Total Variable Manufacturing
Costs531,570Fixed Manufacturing Overhead95,000Total
Manufacturing Costs626,570Gross Margin$360,430
Variance Supporting CalculationUse Tables III and IV on the
MDE Manufacturing Budget to complete your calculations.
Development of Price and Efficiency Variances -
CalculationsActual Feet per UnitActual UnitsActual Feet

26. UsedActual CostActual Cost per Unit DM-
Plastic147,00051,70037,741$ 0.80 DM-
Cedar347,000150,400248,160$ 5.28Actual Labor Cost per
HourActual Labor CostsActual Labor HoursActual UnitsActual
Labor Hours per Unit Direct Manuf. Labor$ 11.80$
332,76028,20047,0000.60Actual Costs Incurred
(Actual Input Qty. × Actual Price)
Actual Input Qty. × Budgeted Price
Flexible Budget
(Budgeted Input
Qty. Allowed for
Actual Output
× Budgeted Price)
Actual UnitsActual Feet per UnitActual Price per OunceActual
UnitsActual Feet per UnitBudgeted Cost per OunceActual
UnitsBudgeted Feet per UnitBudgeted Cost per OunceI believe
that all of the yellow highlighted cells should read "per Unit"
and not "per Ounce"Direct Material Plastic47,0001$
0.7347,0001$ 0.7547,0001$ 0.75$ 37,741$ 38,775$
35,250$ 1,034$ (3,525)Price VarianceEfficiency
VarianceDirect Material Cedar47,0003$ 1.6547,0003$
1.5047,0003$ 1.50$ 248,160$ 225,600$ 211,500$
(22,560)$ (14,100)Price VarianceEfficiency VarianceActual
UnitsActual Hours per UnitActual Cost per HourActual
UnitsActual Hours per UnitBudgeted Cost per HourActual
UnitsBudgeted Hours per UnitBudgeted Cost per HourDirect
Manufacturing Labor47,000$ 0.60$ 11.8047,000$ 0.60$
12.0047,0000.5$ 12.00$ 332,760$ 338,400$ 282,000$
5,640$ (56,400)Price VarianceEfficiency VarianceActual
CostsActual Input Qty. × Budgeted Price
Flexible Budget
(Budgeted Input
Qty. Allowed for
Actual Output
× Budgeted Price)Actual CostsActual UnitsActual Feet per
UnitBudgeted Cost per FootActual UnitsBudgeted Feet per

27. UnitBudgeted Cost per FootVariable manufacturing overhead$
2,58547,0000.25$ 0.2047,0000.3$ 0.20$ 2,585$ 2,350$
2,820$ (235)$ 470Spending VarianceEfficiency Variance