Question

Question 2: cole recliners manufacturers leather recliners and uses flexible budgeting . and a standard cost system.

Question 2: Cole Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. Cole allocates overhead based on yards of direct materials. The company's performance report includes the following selected data: Static Budget Actual Results (975 recliners) (955 recliners) (975 recliners x $ 495 each) Sales $ 482,625 (955 recliners x $ 475 each) 453,625 Variable Manufacturing Costs: (5,850 yds.@ $ 8.90/yd.) Direct Materials 52,065 (5,987 yds.@ $ 8.70/ yd.) 52,087 91,650 Direct Labor (9,750 DLHr@ $ 9.40/DLHr) 89,760 (9,350 DLHR@ $ 9.60 / DLHr) (5,850 yds.@ $ 5.30/yd.) Variable Overhead 31,005 (5,987 yds.@ $ 6.70 / yd.) 40,113 Fixed Manufacturing Costs: 62,255 60,255 Fixed Overhead 234,975 244,215 Total Cost of Goods Sold 247,650 $ 209,410 Gross Profit 1. Prepare a flexible budget based on the actual number of recliners sold. 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. 3. Have Cole's managers done a good job or a poor job controlling materials, labor, and overhead costs? Why? 4. Describe how Cole's managers can benefit from the standard costing system.

Answer 1

Solution 1 Cole Recliners Flexible Budget - 955 recliners sold Working 955 x $495 Budgeted Actual Amount Results 472725 453625 Variance 19100 Unfavourable Particulars Sales Variable Costs Direct Material Direct Labour Variable Overheads 5850 yds/975 x 955 x $8.90 9750 DLhrs /975 x 955 x $9.40 5850 yds/975 x 955 x $5.30 50997 8 9770 30369 52087 89760 40113 1090 Unfavourable 10 Favourable 9744 Unfavourable 2000 Unfavourable Fixed Manufacturing Costs: Fixed Overheads Total Cost of Goods Sold Gross Profit 60255 231391 241334 62255 244215 209410 Solution 2 Material Price Variance (Actual Price - Standard Price) x Actual Quantity ($8.70 - $8.90) x 5987 yds $1,197.40 Favourable Material Quantity Variance Qty required (flexible) (Actual Quantity - Standard Quantity) x Standard Price 5850 yds / 975 x 955 5730 yds (5987 yds - 5730 yds) x $8.90 /yd $2,287.30 Unfavourable Material Qty Variance Labor rate Variance (Actual Rate - Standard Rate) x Actual hours worked ($9.60 - $9.40) x 9350 DL hours $1,870.00 Unfavourable

Labor Efficiency Variance Flexible Direct labour hours (Actual hours - Standard hours) x Standard rate 9750 Dlhr / 975 x 955 9550 DL hours (9350 - 9550) $9.40 $1,880.00 Favourable Lab Efficiency Variance Variable Cost variance (Actual Rate - Standard Rate) x Actual Quantity ($6.70 - $5.30) x 5987 yds $8,381.80 Unfavourable Variable Od Efficiency Variance Flexible Qty (Actual Qty - Standard Qty) x Standard rate 5850 yds / 975 x 955 5730 yds (5987 yds - 5730 yds) < $5.30 /yd $1,362.10 Unfavourable Lab Efficiency Variance Fixed overhead Variance Actual Cost - Budgeted cost $ 62255 - $ 60255 $2,000.00 Unfavourable Solution 3. Cole's Managers have done a poor Job in controlling Maeterial and overheads cost, although labour expenses shows Favourable Variance of $10. The Material unfavourable is due of Over utilization of Material than budgeted Variable overhead have increased due to increase in Qty consumption per unit as well as cost per unit Solution 4. Cole's manager can use Standard costing system to find the Variances, reason for such deviations from the predetermined Budgets, and then manager can work accordingly to improve the variances and reduce the costs

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