Chapter 6 Materials Fall 2023

Sales Volume (car washes) 8,800 Sales 132,000 $ Budgeted Variable Costs Cleaning supplies 19,800 Electricity 4,400 Labor 35,200 Budgeted Fixed Costs Manager's Salary 4,500 Depreciation (equip) 9,000 Rent (building) 12,000 Net Operating Income: 47,100 $ At the end of the month, the actual results were compared to December's budget. Actual Static Results Budget Difference Sales Volume (car washes) 9,100 8,800 300 Sales 136,500 $ 132,000 $ 4,500 Budgeted Variable Costs Cleaning supplies 18,200 19,800 (1,600) Electricity 4,641 4,400 241 Labor 35,945 35,200 745 Budgeted Fixed Costs Manager's Salary 4,500 4,500 ‐ Depreciation (equip) 9,200 9,000 200 Rent (building) 12,000 12,000 ‐ Net Operating Income: 52,014 $ 47,100 $ 4,914 $ Waco Car Wash (WCW) prepared the following budgeted Income Statement for the month of December. Calculate WCW's sales price and standard costs. 1 Chapter 6 Performance Evaluation - Variance Analysis Overall, How did you perform? What is a Static Budget? What is a flexible budget?

Flexible Sales Actual Budget Flexible Volume Static Results Variance Budget Variance Budget Sales Volume (car washes) 9,100 8,800 Sales 136,500 $ 132,000 $ Budgeted Variable Costs Cleaning supplies 18,200 19,800 Electricity 4,641 4,400 Labor 35,945 35,200 Budgeted Fixed Costs Manager's Salary 4,500 4,500 Depreciation (equip) 9,200 9,000 Rent (building) 12,000 12,000 Net Operating Income: 52,014 $ 47,100 $ Prepare a flexible budget for the month of December and a flexible budget performance report for Waco Car Wash. What might have caused the difference between the actual cost of the cleaning supplies and the amount that should have been incurred (the flexible budget amount) ? Unfavorable variances: Favorable variances: 2

Use top model for materials variances when materials purchased equals materials used. Actual Quantity of Standard Quantity Allowed Inputs at Standard Price for Output at Standard Price Variance Variance Materials Price Variance Materials Quantity Variance Labor Rate Variance Labor Efficiency Variance Variable OH Spending Variance Variable OH Efficiency Variance Use this model when materials purchased is not equal to materials used. Actual Quantity of Actual Quantity of Standard Quantity Allowed Inputs Purchased at Inputs Used at for Output at Standard Price at Standard Price at Standard Price (1) - (2) (2) - (3) Price Variance Quantity Variance Materials Price Variance Materials Quantity Variance (3) AQpurch. * AP AQused * SP SQ * SP (3) (1) Actual Quantity of Inputs at Ac tu al Price AQ * AP AQ * SP (1) Actual Quantity of Inputs at Ac tu al Price (2) SQ * SP AQpurch * SP (1) - (2) (2) - (3) (2) (2) 3 Variance Model 3

Direct Materials Direct Labor AQ = AH = AP = AR = SQ = SH = SP = SR = 1. Waco Car Wash actually washed 9100 cars using 113,750 oz of soap at a cost of $.16 per oz to wash. Waco Car Wash’s standards for one car wash are 9oz of soap, at a cost of $.25 per oz. (1) (2) (3) (1) ‐ (2) (2) ‐ (3) Price Variance Quantity Variance 4