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chapter_23_assignment.docxPreston Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. Preston 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 $495 each) $ 495,000
(980 recliners x $475 each) $ 465,500
Variable Manufacturing Costs:
Direct Materials (6,000 yds. @ $8.80/yd.) 52,800
(6,150 yds. @ $8.60/yd.) 52,890
Direct Labor (10,000 DLHr @ $9.20/DLHr) 92,000
(9,600 DLHr @ 9.30/DLHr) 89,280
Variable Overhead (6,000 yds. @ $5.00/yd.) 30,000
(6,150 yds. @ $6.40/yd.) 39,360
Fixed Manufacturing Costs:
Fixed Overhead 60,000 62,000
Total Cost of Goods Sold 234,800 243,530
Gross Profit $ 260,200 $ 221,970
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.
3.) Have Prestons’ managers done a good job or a poor job controlling materials, labor, and overhead costs? Why?
