210 Understanding the Numbers
Jane then used these numbers to show how the budgeted and actual variable
costs in Exhibit 7.1 were derived. For the static budget:
For the f lexible budget:
For the actual costs:
Material Indices
Jane also used the standards in Exhibit 7.3 to show Tom how indices for each of
the components of the variable costs could be determined and interpreted.
Consider first the material costs:
In words, the material portion of the variable cost fell 12.5% from the f lexi-
ble budget to the actual because of the 12.5% decrease in the cost of paper
from $0.008 per page to $0.007 per page. There were no efficiencies or
Material IndexActual Costs
Flexible Budgetper page pages per ream reams)
per page pages per ream reams)=== ××
××=
×
×
=××
=$,
$,
($. ,
($. ,
.
.,
,
...
.4 200
4 800
0 007 500 1 200
0 008 500 1 200
0 007
0 008500
5001 200
1 200
0 875 1 00 1 00
0 875Material Costs per ream reams
Labor Costs per ream reams
Variable OH per ream reamsTotal Variable Costs as reported in Exhibit 7.1=×=
=×=
=×==$. , $,
$. , $,
$. , $,$,3 50 1 200 4 200
1 50 1 200 1 800
1 25 1 200 1 5007 500Material Costs per ream reams
Labor Costs per ream reams
Variable OH per ream reamsTotal Variable Costs as reported in Exhibit 7.1=×=
=×=
=×==$. , $,
$. , $,
$. , $,$,4 00 1 200 4 800
1 50 1 200 1 800
1 50 1 200 1 8008 400Material Costs per ream reams
Labor Costs per ream reams
Variable OH per ream reamsTotal Variable Costs as reported in Exhibit 7.1=×=
=×=
=×==$. , $,
$. , $,
$. , $,$,4 00 1 000 4 000
1 50 1 000 1 500
1 50 1 000 1 5007 000