The Milwaukee Talkies have developed the following sales forecasts for the next
ID: 2518599 • Letter: T
Question
The Milwaukee Talkies have developed the following sales forecasts for the next few months. January 800, February 400, March 600, April 200 and May 50. The Milwaukee Talkies have 80 headsets on hand on Dec. 31 . Normal ending inventory policy is to hold 35% of next month's sales. Each headset needs .9 yards of wire and three grams of glitter. Wire is budgeted to cost $10 per yard and glitter $9 per gram. Direct labor is paid $14 per hour. Each headset takes 45 minutes to hand-finish. Variable overheads total S19 per direct labor hour. Fixed overheads amount to S15,000 per month. 40 yards of wire and 5 grams of glitter were in stock at year-end. 15% and 10% of next month's glitter and wire needs respectively are planned for raw materials ending inventory each month. Given the production target of 400 headsets for February, assume that the actual output for February was 450 headsets and that actual production costs totaled $40,000 a. b. c. Make a Master budget and figure out the unfavorable or favorable variance. Make a Flexible budget and figure out the unfavorable or favorable variance If you were the manager which one would you prefer to have?Explanation / Answer
a.
b.
c.
If I were the manager, I would prefer to have the flexible budget for comparing the actual , since this allows the correct analysis of the activities, as the budget is flexed to the actual production.
Also the the variance from the flexible budget is favourable , as the actual cost is less than the cost as per flexible budget.
The Milwaukee Talkies Master Budget Actual Variance Production - Sets 400 450 Per Set Total Raw material $36.00 $14,400 Direct labor $10.50 $4,200 Variable overheads $14.25 $5,700 Fixed overheads $15,000 Total manufacturing cost $39,300 $40,000 -$700