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Chapter 23: Q2SE (page 1306)

Preparing flexible budgets

Moje, Inc. manufactures travel locks. The budgeted selling price is \(19 per lock, thevariable cost is \)9 per lock, and budgeted fixed costs are $13,000 per month. Prepare aflexible budget for output levels of 4,000 locks and 11,000 locks for the month endedApril 30, 2018.

Short Answer

Expert verified

The flexible budget of a company shows $27,000 operating income for 4,000 units and $97,000 operating income for 11,000 unitsfor the month ended April 30, 2018.

Step by step solution

01

 Step 1:Explanation on flexible budget

A flexible budget is a budget that adjusts to the volume or activity levels of an organisation. The flexible budget can be utilized for the determination of budgeted expenses, sales, and profits at different levels of activity.

02

Flexible budget

Moje, Inc.

Flexible Budget

For the month ofApril 30, 2018

Units

4,000

11,000

Sales Revenue @$19

$76,000

$209,000

Less:VariableCost @$9

($36,000)

($99,000)

Contribution margin

$40,000

$110,000

Less: Fixed cost

($13,000)

($13,000)

Operating Income

$27,000

$97,000

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Most popular questions from this chapter

Question:List the fixed overhead variances, and briefly describe each.

Question: How is a flexible budget used?

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.

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?

Martin, Inc. manufactures lead crystal glasses. The standard direct labor time is 0.5 hours per glass, at a cost of \(18 per hour. The actual results for one month鈥檚 production of 6,500 glasses were 0.2 hours per glass, at a cost of \)11 per hour. Calculate the direct labor cost variance and the direct labor efficiency variance.

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