Chapter 23: Q5RQ (page 1305)
Question: How is a flexible budget used?
Answer
A flexible budget isused for preparing the flexible budget performance report.
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Question:How does the static budget affect the cost and efficiency variances?
Computing and journalizing standard cost variances
Moss manufactures coffee mugs that it sells to other companies for customizing with their own logos. Moss 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 material (0.2 lbs. @\(0.25 per lb) | \)0.05 | |
Direct Labor (3 minutes @ \(0.11 per minute) | 0.33 | |
Manufacturing Overhead: | ||
Variable (3 minutes @ \)0.06 per minute) | \(0.18 | |
Fixed (3 minutes @ \)0.13 per minute) | 0.39 | 0.57 |
Total Cost per Coffee Mug | \(0.95 |
Actual cost and production information for July 2018 follows:
a. There were no beginning or ending inventory balances. All expenditures were on account.
b. Actual production and sales were 62,500 coffee mugs.
c. Actual direct materials usage was 11,000 lbs. at an actual cost of \)0.17 per lb.
d. Actual direct labor usage was 197,000 minutes at a total cost of \(25,610.
e. Actual overhead cost was \)10,835 variable and \(29,765 fixed.
f. Selling and administrative costs were \)95,000.
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 costs from Work-in-Process Inventory. Journalize the adjusting of the Manufacturing Overhead account.
5. Moss intentionally hired more highly skilled workers during July. How did this decision affect the cost variances? Overall, was the decision wise?
Question:How is the fixed overhead volume variance different from the other variances?
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.
Gunter Company reported the following manufacturing overhead variances.
Variable overhead cost variance | $320 F |
Variable overhead efficiency variance | 458 U |
Fixed overhead cost variance | 667 U |
Fixed overhead volume variance | 625 F |
24. Record the journal entry to adjust Manufacturing Overhead.
25. Was Manufacturing Overhead overallocated or underallocated?
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