Chapter 21: Q10DQ (page 967)
What is the predetermined standard overhead rate? How is it computed?
The predetermined standard overhead rate estimates theuse of overhead costs in a specific period.
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City Company’s fixed budget performance report for July follows. The \(647,500 budgeted total expenses include \)487,500 variable expenses and \(160,000 fixed expenses. Actual expenses include \)158,000 fixed expenses. Prepare a flexible budget performance report that shows any variances between budgeted results and actual results. List fixed and variable expenses separately.
Fixed Budget Actual Results Variances
Sales (in units) 7,500 7,200
Sales (in dollars) \(750,000 \)737,000 \(13,000 U
Total expenses 647,500 641,000 6,500 F
Income from operations \)102,500 \(96,000 \)6,500 U
Reed Corp. has set the following standard direct materials and direct labor costs per unit for the product it manufactures.
Direct materials (10 lbs. @ \(3 per lb.) \)30
Direct labor (2 hrs. @ \(12 per hr.) 24
During June the company incurred the following actual costs to produce 9,000 units.
Direct materials (92,000 lbs. @ \)2.95 per lb.) \(271,400
Direct labor (18,800 hrs. @ \)12.05 per hr.) 226,540
Compute the (1) direct materials price and quantity variances and (2) direct labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.
Refer to the information in Problem 21-1B. Tohono Company’s actual income statement for 2017 follows.
TOHONO COMPANY | ||
Statement of Income from Operations | ||
For Year Ended December 31, 2017 | ||
Sales (24,000 units) | \(3,648,000 | |
Cost of goods sold | ||
Direct materials | \)1,400,000 | |
Direct labor | 360,000 | |
Machinery repairs (variable cost) | 60,000 | |
Depreciation-Machinery | 250,000 | |
Utilities (variable cost, \(64,000) | 218,000 | |
Plant manager salaries | 155,000 | 2,443,000 |
Gross profit | 1,205,000 | |
Selling expenses | ||
Packaging | 90,000 | |
Shipping | 124,000 | |
Sales salary (annual) | 162,000 | 376,000 |
General and administrative expenses | ||
Advertising expense | 104,000 | |
Salaries | 232,000 | |
Entertainment expense | 100,000 | 436,000 |
Income from operations | \)393,000 |
Required
Prepare a flexible budget performance report for 2017.
Analysis Component
Analyze and interpret both the (a) sales variance and (b) direct materials cost variance.
In general, variance analysis is said to provide information about __________ and ____________ variances.
Identify each of the following terms or phrases as either an accounting: (a) principle, (b) assumption, or (c) constraint. 1. Materiality 3. Benefit exceeds cost 2. Time period 4. Revenue recognition.
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