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Chapter 23: Q1TI (page 1288)

Question:Garland Company expects to sell 600 wreaths in December 2018, but wants to plan for 100 more and 100 less than expected. The wreaths sell for \(5.00 each and have variable costs of \)2.00 each. Fixed costs are expected to be $500 for the month. Prepare a flexible budget for 500, 600, and 700 wreaths.

Short Answer

Expert verified

Answer

The flexible budget is prepared for the quantities 500, 600, and 700 units with operating income of $1,000, $1,300, and $1,600 respectively.

Step by step solution

01

Definition of variable costs

The variable costs are defined as the cost incurred by the company which changes with the change in volume of sales or the production.

02

Computation of direct material efficiency variance

Garland Company
Flexible Budget
For the month Ended December 31, 2018

UNITS

Budget amount per unit ($)

500 ($)

600 ($)

700 ($)

Sales Revenue

5.00

$2,500

$3,000

$3,500

Variable costs

2.00

1,000

1,200

1,400

Contribution Margin

1,500

1,800

2,100

Fixed cost

500

500

500

Operating Income

1,000

1,300

1,600

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Most popular questions from this chapter

Question:Match the product cost variance with the manager most probably responsible. Some answers may be used more than once. Some answers may not be used.

Variance Manager

19. Variable overhead cost variance

20. Direct materials efficiency variance

21. Direct labor cost variance

22. Fixed overhead cost variance

23. Direct materials cost variance

a. Human resources

b. Purchasing

c. Production

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.

Briefly describe how journal entries differ in a standard cost system.

Question: How is a flexible budget used?

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.
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