Preparing a flexible budget and computing standard cost variances Relaxing Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. Relaxing allocates overhead based on yards of direct materials. The company’s performance report includes the following selected data:
|
|
Static Budget |
Actual Results |
|
Sales (975 recliners x $505) |
$ 492,375 |
|
|
(955 recliners x $485) |
|
$ 463,175 |
|
Variable manufacturing costs: |
|
|
|
Direct materials (5,850 yds @ $8.90/yard) |
52,065 |
|
|
(6,000 yds @ $8.70/yard) |
|
52,200 |
|
Direct labor (9,750 hrs @ $9.00/hour) |
87,750 |
|
|
(9,350 hrs @ $9.10/hour) |
|
85,085 |
|
Variable overhead (5,850 yds @ $5.30/yard) |
31,005 |
|
|
(6,000 yds @ $6.70/yard) |
|
40,200 |
|
Fixed manufacturing costs: |
|
|
|
Fixed overhead |
60,255 |
62,255 |
|
Total cost of goods sold |
$ 231,075 |
$ 239,740 |
|
Gross profit |
$ 261,300 |
$ 223,435 |
Requirements
1. Prepare a flexible budget based on the actual number of recliners sold.
2. Compute the price variance and the efficiency variance for direct materials and for direct labor. For manufacturing overhead, compute the variable overhead spending, variable overhead efficiency, fixed overhead spending, and fixed overhead volume variances.
3. Have Relaxing’s managers done a good job or a poor job controlling materials, labor, and overhead costs? Why?
4. Describe how Relaxing’s managers can benefit from the standard costing system.