Question

E9-3 (Static) Preparing a Flexible Budget Performance Report [LO 9-2] 

Gleason Guitars produces acoustic guitars. The table below contains budget and actual information for the month of June (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (.e., zero variance).) 

Answer 1

Answer 2

Calculation of Variances is shown as follows:- (Amounts in $)

	Actual Costs 225 Units (A)	Spending Variance (B-A)	Flexible Budget 225 Units (B)	Volume Variance (C-B)	Master Budget 200 Units (C)
Direct Material	15,500	250 F	15,750 (14,000*225/200)	1,750 U	14,000
Direct Labor	26,200	1,450 U	24,750 (22,000*225/200)	2,750 U	22,000
Variable Overhead	8,250	750 F	9,000 (8,000*225/200)	1,000 U	8,000
Fixed Overhead	11,500	500 U	11,000	0	11,000
Total Manufacturing Costs	61,450	950 U	60,500	5,500 U	55,000

Therefore total spending variance is $950 Unfavorable and total volume variance is $5,500 Unfavorable.

Note:-

1) Fixed overhead would remain same irrespective of change in units (i.e. for both level of units, budgeted fixed overhead is $11,000).