Ellis Animal Health, Inc., produces a generic medication used to treat cats with feline diabetes. The liquid medication is sold in 100 ml vials. Ellis employs a team of sales representatives who are paid varying amounts of commission. Given the narrow margins in the generic veterinary drugs industry, Ellis relies on tight standards and cost controls to manage its operations. Ellis has the following budgeted standards for the month of April 2017: $ 8.30 $ 3.60 $ 15.00 100 Average selling price per vial Total direct materials cost per vial Direct manufacturing labor cost per hour Average labor productivity rate (vials per hour) Sales commission cost per vial Fixed administrative and manufacturing overhead $ 0.72 $990,000 Ellis budgeted sales of 700,000 vials for April. At the end of the month, the controller revealed that actual results for April had deviated from the budget in several ways: - Unit sales and production were 90% of plan. - Actual average selling price decreased to $8.20. Productivity dropped to 90 vials per hour. - Actual direct manufacturing labor cost was $15.20 per hour. - Actual total direct material cost per unit increased to $$3.90. · Actual sales commissions were $0.70 per vial. - Fixed overhead costs were $110,000 above budget.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter8: Budgeting For Planning And Control

Section: Chapter Questions

Problem 11CE: Shalimar Company manufactures and sells industrial products. For next year, Shalimar has budgeted...

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Q. Calculate Static-budget variance for operating income forEllis for April 2017

Ellis Animal Health, Inc., produces a generic medication
used to treat cats with feline diabetes. The liquid medication is sold in 100 ml vials. Ellis employs a team of
sales representatives who are paid varying amounts of commission.
Given the narrow margins in the generic veterinary drugs industry, Ellis relies on tight standards and cost
controls to manage its operations. Ellis has the following budgeted standards for the month of April 2017:
$ 8.30
$ 3.60
$ 15.00
100
Average selling price per vial
Total direct materials cost per vial
Direct manufacturing labor cost per hour
Average labor productivity rate (vials per hour)
Sales commission cost per vial
Fixed administrative and manufacturing overhead
$ 0.72
$990,000
Ellis budgeted sales of 700,000 vials for April. At the end of the month, the controller revealed that actual
results for April had deviated from the budget in several ways:
- Unit sales and production were 90% of plan.
- Actual average selling price decreased to $8.20.
Productivity dropped to 90 vials per hour.
- Actual direct manufacturing labor cost was $15.20 per hour.
- Actual total direct material cost per unit increased to $$3.90.
· Actual sales commissions were $0.70 per vial.
- Fixed overhead costs were $110,000 above budget.

Definition Definition Measure used to estimate the difference between the budgeted and annual proportion for a specific accounting year. A favorable budget variance refers to positive variances or gains, while unfavorable or negative variances refer to a shortfall in the budget. A budget variance is indicative of the instances where the actual costs incurred are higher or lower than the estimated costs.

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