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Chapter 23: Q3SE (page 1306)

Calculating flexible budget variances

Complete the flexible budget variance analysis by filling in the blanks in the partialflexible budget performance report for 9,000 travel locks for Grant, Inc.

GRANT, INC.

Flexible Budget Performance Report (partial)

For the Month Ended April 30, 2018


ActualResults
Flexible Budget Variance
Flexible Budget

Units
9,000
(a)
9,000

Sales Revenue

\(126,000

(b)

(c)

\)108,000

Variable Costs

\(52,300

(d)

(e)

\)50,300

Contribution Margin

\(73,700

(f)

(g)

\)57,700

Fixed Costs

\(16,100

(h)

(i)

\)14,900

Operating Income

\(57,600

(j)

(k)

\)42,800

Short Answer

Expert verified

Actual operating income is greater than Flexible budgeted operating income by $14,800. It means the flexible budget variances is favourable.

Step by step solution

01

Step 1:

A flexible budget variance is the distinction between the outcomes extracted by a flexible budget and actual outcomes.Favorable variances occurs when actual outcome exceed budgeted outcome. Unfavorable variances occurs when actual outcome fall below budgeted outcome.

02

Step 2:

GRANT, INC.

Flexible Budget Performance Report (partial)

For the Month Ended April 30, 2018


ActualResultsFlexible Budget Variance
Flexible Budget
Units
9,000
0
9,000

Sales Revenue

$126,000

$18,000

F

$108,000

Variable Costs

$52,300

$2,000

F

$50,300

Contribution Margin

$73,700

$16,000

F

$57,700

Fixed Costs

$16,100

$1,200

F

$14,900

Operating Income

$57,600

$14,800

F

$42,800

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Most popular questions from this chapter

Kellogg Company manufacturers and markets ready-to-eat cereal and convenience foods including Raisin Bran, Pop Tarts, Rice Krispies Treats, and Pringles. In addition to the raw materials used when producing its products, Kellogg Company also has significant labor costs associated with the products. As of January 2, 2016, Kellogg Company had approximately 33,577 employees. A shortage in the labor pool, regulatory measures, and other pressures could increase the company鈥檚 labor cost, having a negative impact on the company鈥檚 operating income.

Requirements

1. Suppose Kellogg Company noticed an increase in its actual direct labor costs compared to the budgeted amount. How could Kellogg Company investigate this?

2. What is the direct labor cost variance and how would a company calculate this variance?

3. What is the direct labor efficiency variance and how would a company calculate this variance?

4. Suppose that Kellogg Company found an unfavorable total direct labor variance that was due completely to the direct labor cost variance. What measures could Kellogg Company take to control this variance?

5. Suppose that Kellogg Company found an unfavorable total direct labor variance that was due completely to the direct labor efficiency variance. What measures could Kellogg Company take to control this variance?

Matching terms

Match each term to the correct definition.

Terms Definitions

a. Flexible budget

b. Flexible budget variance

c. Sales volume variance

d. Static budget

e. Variance

1. A summarized budget for several levels of volume thatseparates variable costs from fixed costs.

2. A budget prepared for only one level of sales.

3. The difference between an actual amount and thebudgeted amount.

4. The difference arising because the company actuallyearned more or less revenue, or incurred more or lesscost, than expected for the actual level of output.

5. The difference arising only because the number ofunits actually sold differs from the static budget units.

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: What are the two components of the static budget variance? How are they calculated?

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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