Chapter 23: Q3RQ (page 1305)
Question: What is a static budget performance report?
Answer
The reportreflects the difference between theactual activity level achieved by the business entity and thelevel of activity stated in the static budget.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Understanding variance relationships
Complete the table below for the missing variances.
Total Flexible Budget Product Cost Variance (a) |
Total direct material variance (b) | Total direct labor variance (c) | Total Manufacturing Overhead Variance (d) |
Direct material cost variance | Direct material efficiency variance | Direct Labor Cost Variance | Direct Labor Efficiency Variance | Total Variable Overhead Variance | Total fixed overhead variance |
\(310F | \)165U | \(160U | \)415F | (e) | (f) |
Variable Overhead Cost Variance | Variable Overhead Efficiency Variance | Fixed Overhead Cost Variance | ||||
\(525U | \)575F | $50F |
Question:Give the general formulas for determining cost and efficiency variances.
Journalizing materials entries
The following direct materials variance analysis was performed for Moore.
Requirements
1. Record Moore’s direct materials journal entries. Assume purchases were made on the account.
2. Explain what management will do with this variance information
Preparing a flexible budget and computing standard cost variances
McKnight Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. McKnight allocates overhead based on yards of direct materials. The company’s performance report includes the following selected data:
Static Budget (1,025 recliners) | Actual Results (1,005 recliners) | ||
Sales | (1,025 recliners * \(500 each) | \)512,500 | |
(1,005 recliners * \(495 each) | \)497,475 | ||
Variable Manufacturing Costs: | |||
Direct Materials | (6,150 yds. @ \(8.50/yard) | 52,275 | |
(6,300 yds. @ \)8.30/yard) | 52,290 | ||
Direct Labor | (10,250 DLHr @ \(9.20/DLHr) | 94,300 | |
(9,850 DLHr @ \)9.40/DLHr) | 92,590 | ||
Variable Overhead | (6,150 yds. @ \(5.10/yard) | 31,365 | |
(6,300 yds. @ \)6.50/yard) | 40,950 | ||
Fixed Manufacturing Costs: | |||
Fixed Overhead | 62,730 | 64,730 | |
Total Cost of Goods Sold | 240,670 | 250,560 | |
Gross Profit | \(271,830 | \)246,915 |
Requirements
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. Round to the nearest dollar.
3. Have McKnight’s managers done a good job or a poor job controlling materials, labor, and overhead costs? Why?
4. Describe how McKnight’s managers can benefit from the standard cost system.
Question:List the direct materials variances, and briefly describe each.
What do you think about this solution?
We value your feedback to improve our textbook solutions.
