Chapter 23: Q6RQ (page 1305)
Question: What are the two components of the static budget variance? How are they calculated?
Answer
Static budget variance is calculated by summing up the sales volume and flexible budget variance.
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Question:Top managers of Marshall Industries predicted 2018 sales of 14,800 units of its product at a unit price of \(9.50. Actual sales for the year were 14,600 units at \)12.00 each. Variable costs were budgeted at \(2.00 per unit, and actual variable costs were \)2.10 per unit. Actual fixed costs of \(48,000 exceeded budgeted fixed costs by \)4,000.
Prepare Marshall’s flexible budget performance report. What variance contributed most to the year’s favorable results? What caused this variance?
In 75 words or fewer, explain what a cost variance is and describe its potential causes.
Murphy Company managers received the following incomplete performance report:
Units Actual Results Flexible Budget Variance Static Budget Flexible Budget Sales Volume Variance Sales Revenue Contribution Margin Fixed Expenses Operating Income 35,000 (a) (b) 5,000 F \( 29,000 \) 14,000 105,000 0 \( 219,000 \) 27,000 F 85,000 13,000 MURPHY COMPANY Flexible Budget Performance Report For the Year Ended July 31, 2018 134,000 14,000 35,000 \( 35,000 100,000 \) 219,000 84,000 135,000 (c) (d) (e) (f) (h) (g) (i) (j) (k) (l)
Complete the performance report. Identify the employee group that may deserve praise and the group that may be subject to criticism. Give your reasoning.
Question: What is a static budget performance report?
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. @ \(0.25 per lb.) \) 0.05 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?
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