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Chapter 23: Q17E (page 1310)

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鈥檚 flexible budget performance report. What variance contributed most to the year鈥檚 favorable results? What caused this variance?

Short Answer

Expert verified

Answer

The flexible budget performance reports are prepared as per the data provided which is shown in step 1.

The favorable revenue flexible variance of $36,500 is contributing the most. The variance was favorable as the selling price was higher than the budgeted selling price as per step 2 of the solution.

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

14,600

14,600

14,800

Sales Revenue

175,200

36,500 F

138,700

1,900 U

140,600

Variable expenses

-30,660

1,460 U

-29,200

400 F

-29,600

Contribution Margin

144,540

35,040 F

109,500

1,500 U

111,000

Fixed Expenses

-48,000

4,000 U

-44,000

0

-44,000

Operating Income

96,540

31,040 F

65,500

1,500 U

67,000

02

Requirements 2 and 3

The favorable revenue flexible budget variance is $36,500 which has contributed the most to the year鈥檚 favorable results.

The variance occurred in favorable as actual selling price per unit is higher in comparison to the budgeted selling price.

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Most popular questions from this chapter

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: List the variable overhead variances, and briefly describe each

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鈥檚 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鈥檚 managers done a good job or a poor job controlling materials, labor, and overhead costs? Why?

4. Describe how McKnight鈥檚 managers can benefit from the standard cost system.

Preparing a flexible budget computing standard cost variance

Morton Recliners manufactures leather recliners and uses flexible budgeting and a

standard cost system. Morton allocates overhead based on yards of direct materials.

The company鈥檚 performance report includes the following selected data:

Static Budget Actual Results

(1,000 recliners) (980 recliners)

Sale (1,000 recliners \(505 each) \) 505,000

(980 recliners \(480 each) \) 470,400

Variable Manufacturing Costs:

Direct Materials (6,000 yds. @ \(8.60/yd.) 51,600

(6,143 yds. @ \)8.40/yd.) 51,601

Direct Labor (10,000 DLHr @ \(9.20/DLHr) 92,000

(9,600 DLHr @ \)9.30/DLHr) 89,280

Variable Overhead (6,000 yds. @ \(5.20/yd.) 31,200

(6,143 yds. @ \)6.60/yd.) 40,544

Fixed Manufacturing Costs:

Fixed Overhead 60,600 62,600

Total Cost of Goods Sold 235,400 244,025

Gross Profit \( 269,600 \) 226,375

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 Morton鈥檚 managers done a good job or a poor job controlling materials, labor, and overhead costs? Why?

4. Describe how Morton鈥檚 managers can benefit from the standard cost system.

Question:List the direct labor variances, and briefly describe each.

See all solutions

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