Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)

16th Edition

ISBN: 9780134475585

Author: Srikant M. Datar, Madhav V. Rajan

Publisher: PEARSON

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Textbook Question

Chapter 7, Problem 7.25E

Flexible-budget and sales volume variances. Cascade, Inc., produces the basic fillings used in many popular frozen desserts and treats—vanilla and chocolate ice creams, puddings, meringues, and fudge. Cascade uses standard costing and carries over no inventory from one month to the next. The ice-cream product group’s results for June 2017 were as follows:

Chapter 7, Problem 7.25E, Flexible-budget and sales volume variances. Cascade, Inc., produces the basic fillings used in many

Jeff Geller, the business manager for ice-cream products, is pleased that more pounds of ice cream were sold than budgeted and that revenues were up. Unfortunately, variable manufacturing costs went up, too. The bottom line is that contribution margin declined by $52,900, which is just over 2% of the budgeted revenues of $2,592,600. Overall, Geller feels that the business is running fine.

1. Calculate the static-budget variance in units, revenues, variable manufacturing costs, and contribution margin. What percentage is each static-budget variance relative to its static-budget amount?
2. Break down each static-budget variance into a flexible-budget variance and a sales-volume variance.
3. Calculate the selling-price variance.
4. Assume the role of management accountant at Cascade. How would you present the results to Jeff Geller? Should he be more concerned? If so, why?

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Chapter 7, Problem 7.24E

Chapter 7, Problem 7.26E

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Chapter 7 Solutions

Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)

Ch. 7 - What is the relationship between management by...Ch. 7 - What are two possible sources of information a...Ch. 7 - Distinguish between a favorable variance and an...Ch. 7 - What is the key difference between a static budget...Ch. 7 - Why might managers find a flexible-budget analysis...Ch. 7 - Describe the steps in developing a flexible...Ch. 7 - List four reasons for using standard costs.Ch. 7 - How might a manager gain insight into the causes...Ch. 7 - List three causes of a favorable direct materials...Ch. 7 - Describe three reasons for an unfavorable direct...

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Solution Summary: The author explains that variable budget variances are unfavorable to the company as per the flexible budget and sales volume variance.

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