Chapter 23: Q7RQ (page 1305)
Question:What is a flexible budget performance report?
Answer
The flexible budget performance report comparesactual performance with budgeted performance.
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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. @ \(0.25 per lb.) \) 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?
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.
Interpreting material and labor variances
Refer to your results from Short Exercises S236 and S237.
Requirements
1. For each variance, who in Martin’s organization is most likely responsible?
2. Interpret the direct materials and direct labor variances for Martin’s management.
Explain the difference between a favorable and an unfavorable variance.
Marsh Company uses a standard cost system and reports the following information for 2018:
Standards:
3 yards of cloth per unit at \(1.05 per yard
2 direct labor hours per unit at \)10.50 per hour
Overhead allocated at \(5.00 per direct labor hour
Actual:
2,600 yards of cloth were purchased at \)1.10 per yard
Employees worked 1,800 hours and were paid \(10.00 per hour
Actual variable overhead was \)1,700
Actual fixed overhead was \(7,300
Direct materials cost variance \) 130 U
Direct materials efficiency variance 420 F
Direct labor cost variance 900 F
Direct labor efficiency variance 2,100 F
Variable overhead cost variance 1,500 U
Variable overhead efficiency variance 1,500 F
Fixed overhead cost variance 600 U
Fixed overhead volume variance 1,600 F
Marsh produced 1,000 units of finished product in 2018. Record the journal entries to record direct materials, direct labor, variable overhead, and fixed overhead, assuming all expenditures were on account and there were no beginning or ending balances in the inventory accounts (all materials purchased were used in production, and all goods produced were sold). Record the journal entries to record the transfer to Finished Goods Inventory and Cost of Goods Sold (omit the journal entry for Sales Revenue). Adjust the Manufacturing Overhead account
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