Zimmerman Inc. manufactures a single product, CXW. Zimmerman uses budgets and standards in its planning and control functions. Zimmerman makes use of its standards in order to derive their budgeted cost per unit. For example, Exhibit A provides information on the budgeted variable costs per unit. When determining direct material costs for the planning budget income statement, the $12 budgeted material cost per unit of CXW would be used in the calculation.

Exhibit A

Budgeted (Standard) Variable Costs Per Unit of CXW Raw material: 3 pounds at $4 per pound $12 Direct labor: 0.75 direct labor hours at $20 per hour 15 Variable overhead: 0.75 direct labor hours at $12 per hour 9 Total variable budgeted (standard) cost per CXW $36 __________________________________________________________________ The standards for fixed manufacturing overhead costs are: 0.75 direct labor hours at $8 per hour. The standard fixed manufacturing overhead cost per hour is calculated based on a denominator level of activity of 30,000 direct labor hours. The planning budget income statement is based on the expectation of selling 40,000 units of CXW. The budgeted sales price is $65 per unit, and total budgeted fixed selling and administrative costs are $500,000. There are no variable selling and administrative costs in this firm. The company actually produced and sold 36,000 units this year. The company never has a beginning or ending raw materials inventory, because it uses all raw materials purchased. Also, the company never has a beginning or ending finished goods inventory. Everything produced in the year is sold in that same year.

3

The actual income statement for the year is provided in Exhibit B. Exhibit B _______________________________________________________________

Zimmerman Inc. Actual Income Statement

Sales: 36,000 units produced and sold at $68 $2,448,000 Less Variable Costs: Direct materials (100,000 pounds at $4.25 per pound) 425,000 Direct labor (32,000 direct labor hours at $18/hr.) 576,000 Variable manufacturing overhead 400,000 Contribution margin 1,047,000 Less Fixed Costs: Fixed manufacturing overhead costs 280,000 Fixed selling and administrative costs 485,000 Net operating income $ 282,000

4)Could you reconcile spending variances in Part 2 with manufacturing cost variances in Part 3? For example, how is the amount of spending variance for direct materials in Part 2 explained by the amounts of direct material variances in Part 3? Excluding your quantitative analysis if any, your explanation should not be more than 1/3 page double spaced with a 12 font size. (10 points)