Question

Solid Box Fabrications manufactures boxes for workstations. The firm’s standard cost sheet prior to October of the current year and actual results for October are as follows:

Required information {The following information applies to the questions displayed below.] Solid Box Fabrications manufactures boxes for workstations. The firm's standard cost sheet prior to October of the current year and actual results for October are as follows: Budget Information Standard Price and Variable Fixed Costs per Unit Costs Actual Results October 9,500 $ 551,000 $50.00 $ 12.60 51,200 16*x $3 = $ 153,600 5,200 hr $16.80 = Units Sales Variable costs: Direct materials 5 pounds at $2.50 per pound Direct labor 0.50 hour at $14.00 per hour Manufacturing overhead Selling and administrative Total variable costs Contribution margin Fixed costs: Manufacturing (factory) overhead Selling and administrative Total fixed costs Operating income 7.00 2.00 5.00 $ 26.60 $ 23.40 87,360 10,000 45,000 $ 295,960 $ 255,040 $ 46,000 20,000 $ 66,000 $ 55,000 20,000 $ 75,000 $ 180,040

Answer 1

	Master(Static) Budget	Pro Forma Budgets
Units	10,000	9,500	11,000
Sales	540,000	513,000	594,000
Variable costs:
Direct materials	132,300	125,685	145,530
Direct labor	77,000	73,150	84,700
Manufacturing overheads	20,000	19,000	22,000
Selling and administrative	50,000	47,500	55,000
Total variable costs	279,300	265,335	307,230
Contribution margin	260,700	247,665	286,770
Fixed costs:
Manufacturing	51,000	51,000	51,000
Selling and administrative	24,000	24,000	24,000
Total fixed costs	75,000	75,000	75,000
Operating income	185,700	172,665	211,770
Total master(static) budget variance	5,660	Unfavorable
Sales volume variance in terms of operating income	13,035	Unfavorable
Total flexible budget variance	7,375	Favorable
Selling price variance	38,000	Favorable
Total variable cost flexible budget variance	30,625	Unfavorable
Total fixed cost variance	-	Favorable
Direct materials
Purchase price variance	17,920	Unfavorable
Usage variance	9,805	Unfavorable
Direct labor
Rate variance	7,280	Unfavorable
Efficiency variance	6,930	Unfavorable
Working Notes
Original Selling Price	50.00
Increase in Selling Price	8%
Increase in Selling Price	4.00
Budgeted Selling Price for October	54.00
Original Purchase Price	12.60
Increase in Material Price	5%
Increase in Material Price	0.63
Budgeted Material Price for October	13.23
Material per unit (in pounds)	5.00
Material cost per pound	2.65
Labor cost per hour	14.00
Increase in Labor cost	10%
Increase in Labor cost	1.40
Budgeted Labor Cost in October	15.40
Labor hours per unit	0.50
Labor cost per unit	7.70
Increase in Fixed Costs
	Manufacturing	Selling and Admin.
Original Cost	46,000	20,000
Increase in Insurance Costs	5,000	-
Increase in Manager's Salary	-	2,000
Increase in Advertisement Costs	-	2,000
Fixed Costs in October	51,000	24,000
Total master(static) budget variance
= Actual Operating Income - Static Budget Operating Income
= $ 180,040 - $ 185,700
= - $ 5,660
Sales volume variance
= ( Budgeted Sales Volume - Actual Sales Volume) * Budgeted Contribution
=( 10,000 - 9,500) * 26.18
= 500 * $ 26.07
= $ 13,035
Total flexible budget variance
= Flexible Budget Operating Income - Actual Operating Income
= $ 172,665 - $ 180,040
= - $ 7,375
Selling price variance
=(Actual Selling Price - Budgeted Selling Variance) * Actual Units Sold
= ($ 58 - $ 54) * 9,500
= $ 4 * 9,500
= $ 38,000
Total variable cost flexible budget variance
= Budgeted Flexible Variable Costs - Actual Variable Costs
= $ 265,335 - $ 295,960
= - $ 30,625
Total fixed cost variance
= Budgeted Fixed Costs - Actual Fixed Costs
= $ 75,000 - $ 75,000
= $ 0
Direct material purchase price variance
=( Budgeted Purchase Price - Actual Purchase Price)* Actual Quantity
=($ 2.65 - $ 3) * 51,200
= - $ 0.35 * 51,200
= - $ 17,920
Direct material usage variance
=( Budgeted Quantity - Actual Quantity) * Budgeted Rates
=( 47,500 - 51,200) * $ 2.65
= -3,700 * $ 2.65
= - $ 9,805
Direct labor rate variance
= (Budgeted labor rate - Actual labor rate) * Actual labor hours
=( $ 15.40 - $ 16.80) * 5,200
= - $ 1.40 * 5,200
= - $ 7,280
Direct labor efficiency variance
= (Budgeted labor hours - Actual labor hours) * Budgeted labor rates
= (4,750 - 5,200) * $ 15.40
= - 450 * $ 15.40
= - $ 6,930