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Chapter 23: Q16E (page 1310)

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.

Short Answer

Expert verified

The flexible budget performance reports are prepared as per the data provided. The sales team is performing well but on the other hand, the performance of the production and administration team is not up to the mark.

Step by step solution

01

Preparation of flexible budget

Murphy Company

Flexible Budget Performance Report

For the year ended July 31, 2018

Actual ($)

Flexible Budget Variance ($)

Flexible Budget ($)

Sales Volume Variance

Static Budget

Units

35,000

0

35,000

5,000 F

30,000

Sales Revenue

219,000

0

219,000

27,000 F

192,000

Variable expenses

85,000

1,000 U

84,000

13,000 U

71,000

Contribution Margin

134,000

1,000 U

135,000

14,000 F

121,000

Fixed Expenses

105,000

5,000 U

100,000

0

100,000

Operating Income

29,000

6,000 U

35,000

14,000 F

21,000

02

Preparation of flexible budget

The sales team or group of the company deserves praise as they have achieved better sales volume than the budgeted sales volume, which is reflected by the volume variance.

The group responsible for production and administration deserves criticism as the actual variable expenses and fixed expenses have gone up in comparison to the amounts shown in the budgets, which are reflected by flexible budget variance for variable costs (1,000 U) and flexible budget variance for fixed expenses (5,000 U).

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Most popular questions from this chapter

Office Plus sells its main product, ergonomic mouse pads, for \(13 each. Its variable cost is \)5.10 per pad. Fixed costs are \(205,000 per month for volumes up to 65,000 pads. Above 65,000 pads, monthly fixed costs are \)250,000. Prepare a monthly flexible budget for the product, showing sales revenue, variable costs, fixed costs, and operating income for volume levels of 45,000, 55,000, and 75,000 pads.

The May 2018 revenue and cost information for McDonald Outfitters, Inc. follows:

Sales Revenue (at standard) $ 610,000

Cost of Goods Sold (at standard) 348,000

Direct Materials Cost Variance 1,500 F

Direct Materials Efficiency Variance 6,600 F

Direct Labor Cost Variance 4,200 U

Direct Labor Efficiency Variance 2,700 F

Variable Overhead Cost Variance 2,800 U

Variable Overhead Efficiency Variance 1,100

Fixed Overhead Cost Variance 2,300 U

Fixed Overhead Volume Variance 8,300 F

Prepare a standard cost income statement for management through gross profit. Report all standard cost variances for management鈥檚 use. Has management done a good or poor job of controlling costs? Explain.

Martin, Inc. is a manufacturer of lead crystal glasses. The standard direct materialsquantity is 1.0 pound per glass at a cost of \(0.50 per pound. The actual result for onemonth鈥檚 production of 6,500 glasses was 1.2 pounds per glass, at a cost of \)0.30 perpound. Calculate the direct materials cost variance and the direct materials efficiencyvariance.

Matthews Fender, which uses a standard cost system, manufactured 20,000 boat fenders during 2018, using 143,000 square feet of extruded vinyl purchased at \(1.30 per square foot. Production required 400 direct labor hours that cost \)16.00 per hour. The direct materials standard was seven square feet of vinyl per fender, at a standard cost of \(1.35 per square foot. The labor standard was 0.028 direct labor hour per fender, at a standard cost of \)15.00 per hour.

Compute the cost and efficiency variances for direct materials and direct labor. Does the pattern of variances suggest Matthews Fender鈥檚 managers have been making tradeoffs? Explain.

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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