Question

Preston’s Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. Preston allocates overhead based on yards of direct materials.

Please prepare a flexible budget based on the actual number of recliners sold & then (2) Compute the cost variance and the efficiency variance for direct materials and for direct labor. For manufacturing​ overhead, compute the variable overhead​ cost, variable overhead​ efficiency, fixed overhead​ cost, and fixed overhead volume variances. Round to the nearest dollar.

Have Preston​'s managers done a good job or a poor job controlling​ materials, labor, and overhead​ costs? Why? Please describe Preston’s how managers can benefit from the standard costing system.

Thanks in advance ?

Preston Recliners Flexible Budget Budget Amounts per Unit Actual Units (Recliners) Sales Revenue Variable Manufacturing Costs: Direct Materials Direct Labor Variable Overhead Fixed Manufacturing Costs: Fixed Overhead Total Cost of Goods Sold Gross Profit

Answer 1

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1. Flexible Budget
Actual Units			980
Sales	980*$500		$            490,000
Less: Variable Manufacturing Costs:
Direct materials	980*6 Yards*$8.70		$              51,156
Direct Labors	980*10 Hours*$9.20		$              90,160
Variable Overheads	980*6 Yards*$5		$              29,400
Less: Fixed Manufacturing Costs:
Fixed Overheads			$              60,000
Total Cost of Goods Sold			$            230,716
Gross Profit			$            259,284
2. Variances:
Standard Material Price		$                8.70
Standard Quantity	980*6 Yards	5,880
Actual Quantity		6,143
Actual Quantity used		6,143
Actual Matrial Price		$                8.50
Material Cost Variance	AQ(AP-SP)
	(Actual Price	-	Standard Price)	*	Actual Quantity
	$                                    8.50	-	$                   8.70	*	6143
	$                                 1,229	Favorable
Material Quantity Variance	SP(AQ-SQ)
	(Actual Quantity	-	Standard Qty)	*	Standard Price
	6143	-	5880	*	$                     8.70
	$                                 2,288	Unfavorable
Standard Hour Rate		$                9.20
Standard Hour	980*10 Hour	9800
Actual Hours		9600
Actual Hour Rate		$                9.40
Labor Cost Variance	AH(AR-SR)
	(Actual Rate	-	Standard Rate)	*	Actual Hours
	$                                    9.40	-	$                   9.20	*	9600
	$                                 1,920	Unfavorable
Labor Efficiency Variance	SR(AH-SH)
	(Actual Quantity	-	Standard Qty)	*	Standard Price
	9600	-	9800	*	$                     9.20
	$                                 1,840	Favorable
Standard Hour Rate		$                5.00
Standard Hour	980*6 Yards	5,880
Actual Hours		6,143
Actual Hour Rate		$                6.40
Variable Overehad Cost Variance	AH(AR-SR)
	(Actual Rate	-	Standard Rate)	*	Actual Hours
	$                                    6.40	-	$                   5.00	*	6143
	$                                 8,600	Unfavorable
Variable Overhead Efficiency Variance	SR(AH-SH)
	(Actual Quantity	-	Standard Qty)	*	Standard Price
	6143	-	5880	*	$                     5.00
	$                                 1,315	Unfavorable
Fixed Overhead Cost Variance:
Actual Fixed Overhead		$           62,000
Budgeted Fixed Overhead		$           60,000
Fixed Overhead Cost Variance		$              2,000	Unfavorable
Fixed Overhead Volume Variance:
Budgeted Fixed Overhead		$           60,000
Allocated Fixed overhead		$           58,800
$60,000/6,000 Yards*5,880 Yards
(980*6 Yards=5,880)
Fixed Overhead Volume Variance		$              1,200	Favorable