McKnight Recliners manufactures leather recliners and uses flexible budgeting an
ID: 2512370 • Letter: M
Question
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's performance report includes the following selected? data:
Static Budget
Actual Results
(1,000 recliners)
(980 recliners)
Sales
(1,000 recliners x
$500
each)
$500,000
(980 recliners x
$475
each)
$465,500
Variable Manufacturing Costs:
Direct Materials
(6,000 yds. @
$8.50
/ yd.)
51,000
(6,143 yds. @
$8.30
/ yd.)
50,987
Direct Labor
(10,000 DLHr @
$9.30
/ DLHr)
93,000
(9,600 DLHr @
$9.40
/ DLHr)
90,240
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
235,800
244,371
Gross Profit
$264,200
$221,129
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.
4.
Static Budget
Actual Results
(1,000 recliners)
(980 recliners)
Sales
(1,000 recliners x
$500
each)
$500,000
(980 recliners x
$475
each)
$465,500
Variable Manufacturing Costs:
Direct Materials
(6,000 yds. @
$8.50
/ yd.)
51,000
(6,143 yds. @
$8.30
/ yd.)
50,987
Direct Labor
(10,000 DLHr @
$9.30
/ DLHr)
93,000
(9,600 DLHr @
$9.40
/ DLHr)
90,240
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
235,800
244,371
Gross Profit
$264,200
$221,129
Explanation / Answer
1. Flexible Budget For 980 Recliner Static Budget (1000 recliner Flexible Budget (980 Recliner) Actual Results (980 Recliner) Quantity Per Unit Total Quantity Per Unit Total Quantity Per Unit Total Sales 1,000 recliners $500 $500,000 980 Recliner $500 $490,000 (980 recliners $475 $465,500 Variable Manufacturing Costs: Direct Materials 6,000 yds. $8.50 51,000 5880 Recliner $8.50 $49,980.00 (6,143 yds. $8.30 50,987 Direct Labor 10,000 DLHr $9.30 93,000 9800 DLH $9.30 $91,140.00 (9,600 DLHr $9.40 90,240 Variable Overhead 6,000 yds. $5.20 31,200 5880 Yds. $5.20 $30,576.00 (6,143 yds. $6.60 40,544 Fixed Manufacturing Costs: Fixed Overhead 60,600 60,600 62,600 Total Cost of Goods Sold 235,800 $232,296 244,371 Gross Profit $264,200 $257,704 $221,129 Part-2 Computation of Direct Material Price & Quantity Variance Direct Material Price variance (SP-AP)AQ (8.50-8.30)*6143 $1,229 Favourable Direc Material Quantity Variance (SQ-AQ)SP (5880-6143)*8.50 ($2,236) Unfavourable Computation of Direct Labour Rate & Efficiency Variance Direct Labour Rate variance (SR-AR)*AH (9.30-9.40)*9600 ($9,600) Unfavourable Direct Labour Efficiency Variance (SH-AH)SR (9800-9600)*9.30 $1,860 Favourable Computation of variable Overhead Rate & Efficiency & Spending Variance Direct Variable Overhead Rate Variance ( SP-AP)*AH (5.20-6.60)*6143 ($8,600) Un Favourable Direct Variable Overhead Efficiency Variance (SH-AH)SP (5880-6143)*5.20 ($1,368) Un Favourable Direct Variable Overhead Spending Variance Price variance+ Quantity Variance ($9,968) Un Favourable Computation of Fixed Overhead Rate & Volume & Spending Variance Direct Fixed Overhead Rate Variance Budgeted OH- Actual OH 264200-221129 $43,071 Favourable Direct Fixed Overhead Volume Variance Standard Rate applied on standard Hour for actual Qty- Budgeted OH 257704-264200 ($6,496) Un Favourable Direct Fixed Overhead Spending Variance Price variance+ Quantity Variance $36,575 Favourable Part-3 a. purchase Manager Done a good Job but Production manager not used material effectively b. Manager hire labour at higher price but utilise the labour effectively. b. manager has not performed good job to utilise variable overhead at economical price and also not utilise effectively. C. Overall saving in Fixed Overhed Cost has been made by manager but not use effectively Part-4 a. Through Standard costing Statement manager can review their performance and accordingly put more effort to improve it.