2.
To compute flexible budget variances for revenues and the variable costs, first calculate the
budgeted cost or revenue per car, and then multiply that by the actual number of cars detailed.

7-21
The flexible budget variance for fixed costs is the same as the static budget variance, and
equals $0 in this case.
Therefore, the overall flexible budget variance in income is given
by aggregating the variances computed earlier, adjusting for whether they are favorable
or unfavorable.
This yields:
FBV(Operating Income)
=
$5,625F (-) $562.50U (+) $300F
=
$5,362.50.
3.
In addition to understanding the variances computed above, Stevie should attempt to keep
track of the number of cars worked on by each employee, as well as the number of hours
actually spent on each car.
In addition, Stevie should look at the prices charged for
detailing, in relation to the hours spent on each job.
4.
This is just a simple problem of two equations & two unknowns.
The two equations
relate to the
number of cars detailed and the labor costs (the wages paid to the employees).
X = number of cars detailed by long-term employee
Y = number of cars detailed by both short-term employees (combined)
Budget:
X + Y
=
200
Actual:
X + Y
=
225
40X + 20Y = 5600
40X + 20Y = 6000
Substitution:
Substitution:
40X + 20(200-X) = 5600
40X + 20(225-X) = 6000
20X = 1600
20X = 1500
X=80
X = 75
Y=120
Y=150
Therefore the long term employee is budgeted to detail 80 cars, and the new
employees are budgeted to detail 60 cars each.
Actually the long term employee details 75 cars (and grosses $3,000 for the
month), and the other two wash 75 each and gross $1,500 apiece.
5.
The two short-term employees are budgeted to earn gross wages of $14,400 per year (if
June is typical, and less if it is a high volume month).
If this is a part-time job for them,
then that is fine.
If it is full-time, and they only get paid for what they wash, the excess
capacity may be causing motivation problems.
Stevie needs to determine a better way to
compensate employees to encourage retention.
This should increase customer
satisfaction, and potentially revenue, because longer-term employees do a more thorough
job.
In addition, rather than paying the same wage per car, Stevie might consider setting
quality standards and improvement goals for all of the employees.

7-22
7-32
(60 min.)
Comprehensive variance analysis, responsibility issues.
1a.
Actual selling price
= $82.00
Budgeted selling price = $80.00
Actual sales volume = 7,275 units
Selling price variance
= (Actual sales price
−
Budgeted sales price)
×
Actual sales volume
= ($82
−
$80)
×
7,275 = $14,550 Favorable
1b.
Development of Flexible Budget
Budgeted Unit
Amounts
Actual
Volume
Flexible Budget
Amount
Revenues
$80.00
7,275
$582,000
Variable costs
DM
−
Frames
$2.20/oz.
×
3.00 oz.
6.60
a
7,275
48,015
DM
−
Lenses
$3.10/oz.
×
6.00 oz.
18.60
b
7,275
135,315
Direct manuf. labor
$15.00/hr.
×
1.20 hrs.
18.00
c
7,275
130,950