Question

Static Budget Actual Results (1,000 recliners (980 recliners) Sales (1,000 recliners x $ 505 each)$ 505,000 (980 recliners x $ 480 each) 470,400 Variable Manufacturing Costs: (6,000 yds. @ $ 8.60 / yd.) (6,143 yds. $ 8.40 / yd.) (10,000 DLHr$9.20/ DLHr) (9,600 DLHr$ 9.30/ DLHr) (6,000 yds. $ 5.20 /yd.) (6,143 yds. $ 6.60 / yd.) Direct Materials 51,600 51,601 Direct Labor 92,000 89,280 Variable Overhead 31,200 40,544 Fixed Manufacturing Costs: 60,600 235,400 269,600 S 62,600 244,025 226,375 Fixed Overhead Total Cost of Goods Sold Gross Profit repare a flexible budget based on the actual number of recliners sold. 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. 2. 3. Have Morton's managers done a good job or a poor job controlling materials, labor, and overhead costs? Why? Describe how Morton's managers can benefit from the standard costing system 4.

Answer 1

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Par-1. Flexible Budget
	Working	Flexible Budget (980 Recliners)
Sales	980*505	$                                          494,900
Variable Manufacturing Cost:
-Direct Material	6143*8.6	$                                            52,830
-Direct Labor	9600*9.2	$                                            88,320
-Variable Overhead	6143*5.2	$                                            31,944
Fixed Manufacturing Cost:
-Fixed Overheads		$                                            60,600
Total Cost of Goods Sold		$                                          233,693
Gross Profit		$                                          261,207
Part 2: Variances
				F/N
Material Price Variance		6143*(8.40-8.60)	1229	Favorable
Material Quantity Variance		8.6*(6143-6000/1000*980)	2262	Unfavorable
Labor Price Variance		9600*(9.30-9.20)	960	Unfavorable
Labor Efficiency Variance		9.2*(9600-10000/1000*980)	1840	Favorable
Variable Ovh Rate Variance		6143*(6.60-5.20)	8600	Unfavorable
Variable Efficiency Variance		5.2*(6143-6000/1000*980)	1368	Unfavorable
Fixed Overhead Rate Variance		62600-60600	2000	Unfavorable
Fixed Overhead Volume Variance		60600-(980*60600/1000)	1212	Unfavorable
(Budgeted-Allocated)
Part-3
Manager have done reasonably good job in controllng Material and Labor cost as unfavorable variance is being almost offset by favorable variance in these two cases.
However, manager could have done better in case of controlling Overhead cost where we have unfavorable variance only for Rate and Volume.
Part-4
Standard help Managers/Employee to know the target level.
Knowing the target wil help to control the cost.
Standard help management to plan by setting unit cost which in return will help to prepare flexible and static budget