Chapter 23: Q34PGB (page 1319)
Preparing a standard cost income statement Review your results from Problem P2333B.
Middleton’s actual and standard sales price per mug is $5. Prepare the standard cost income statement for July 2018.
Operating income = $106,340
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Computing and journalizing standard cost variances
Middleton manufactures coffee mugs that it sells to other companies for customizing with their own logos. Middleton prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost of a coffee mug is based on static budget volume of 59,800 coffee mugs per month:
Direct Materials (0.2 lbs. @ Direct Labor (3 minutes @ \(0.14 per minute) 0.42 Manufacturing Overhead: Variable (3 minutes @ \)0.06 per minute) \( 0.18 Fixed (3 minutes @ \)0.13 per minute) 0.39 0.57 Total Cost per Coffee Mug \( 1.04 |
Actual cost and production information for July 2018 follows:
a. There were no beginning or ending inventory balances. All expenditures were on account.
b. Actual production and sales were 62,500 coffee mugs.
c. Actual direct materials usage was 11,000 lbs. at an actual cost of \)0.17 per lb.
d. Actual direct labor usage of 197,000 minutes at a cost of \(33,490.
e. Actual overhead cost was \)10,835 variable and \(29,965 fixed.
f. Selling and administrative costs were \)130,000.
Requirements
1. Compute the cost and efficiency variances for direct materials and direct labor.
2. Journalize the purchase and usage of direct materials and the assignment of direct
labor, including the related variances.
3. For manufacturing overhead, compute the variable overhead cost and efficiency variances and the fixed overhead cost and volume variances.
4. Journalize the actual manufacturing overhead and the allocated manufacturing overhead. Journalize the movement of all production from Work in Process Inventory. Journalize the adjusting of the Manufacturing Overhead account.
5. Middleton intentionally hired more highly skilled workers during July. How did this decision affect the cost variances? Overall, was the decision wise?
Preparing a flexible budget performance report
Cell Plus Technologies manufactures capacitors for cellular base stations and other communication applications. The company’s July 2018 flexible budget shows output levels of 8,500, 10,000, and 12,000 units. The static budget was based on expected sales of 10,000 units.
Cell One Technologies | ||||
Flexible budget | ||||
For month ended July 31, 2018 | ||||
Budgeted amount per unit | ||||
Units | 8,500 | 10,000 | 12,000 | |
Sales revenue | \(24 | \)204,000 | \(240,000 | \)288,000 |
Variable expenses | 13 | 110,500 | 130,000 | 156,000 |
Contribution margin | 93,500 | 110,000 | 132,000 | |
Fixed expenses | 57,000 | 57,000 | 57,000 | |
Operating income | \(36,500 | \)53,000 | \(75,000 |
The company sold 12,000 units during July, and its actual operating income was as follows:
Cell One Technologies | |
Income statement | |
For the Month Ended July 31, 2018 | |
Sales revenue | \)295,000 |
Variable expenses | 161,100 |
Contribution margin | 133,900 |
Fixed expenses | 58,000 |
Operating income | $75,900 |
Requirements
1. Prepare a flexible budget performance report for July 2018.
2. What was the effect on Cell Plus’s operating income of selling 2,000 units more than the static budget level of sales?
3. What is Cell Plus’s static budget variance for operating income?
4. Explain why the flexible budget performance report provides more useful information to Cell Plus’s managers than the simple static budget variance. What insights can Cell Plus’s managers draw from this performance report?
Question:How does the static budget affect the cost and efficiency variances?
McCarthy Fender, which uses a standard cost system, manufactured 20,000 boat fenders during 2018. The 2018 revenue and cost information for McCarthy follows:
Sales Revenue \( 1,300,000
Cost of Goods Sold (at standard) 196,800
Direct materials cost variance 7,150 F
Direct materials efficiency variance 5,950 U
Direct labor cost variance 400 U
Direct labor efficiency variance 530 F
Variable overhead cost variance 650 U
Variable overhead efficiency variance 360 F
Fixed overhead cost variance 2,350 U
Fixed overhead volume variance 4,410 U
Assume each fender produced was sold for the standard price of \)65, and total selling and administrative costs were $250,000. Prepare a standard cost income statement for 2018 for McCarthy Fender
Matching terms
Match each term to the correct definition.
Terms Definitions
a. Benchmarking
b. Efficiency variance
c. Cost variance
d. Standard
1. Measures whether the quantity of materials or laborused to make the actual number of outputs is within thestandard allowed for the number of outputs.
2. Uses standards based on best practice.
3. Measures how well the business keeps unit costs ofmaterials and labor inputs within standards.
4. A price, cost, or quantity that is expected under normalconditions.
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