Acct5.1
gladydom
week5lab3.xlsxProblem 1
| Preston 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 (1,000 recliners) | Actual Results (980 recliners) | ||
| Sales (1,000 recliners X $495) | $495,000 | ||
| (980 recliners X $475) | $465,500 | ||
| Variable manufacturing costs: | |||
| Direct materials (6,000 yds @ $8.80/yard) | 52,800 | ||
| (6,150 yds @ $8.60/yard) | 52,890 | ||
| Direct labor (10,000 hrs @ $9.20/hour) | 92,000 | ||
| (9,600 hrs @ $9.30/hour) | 89,280 | ||
| Variable overhead (6,000 yds @ $5.00/yard) | 30,000 | ||
| (6,510 yds @ $6.40/yard) | 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 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 Preston's managers done a good job or a poor job controlling materials, labor, and overhead costs? Why? | |||
| 4. Describe how Preston's managers can benefit from the standard costing system. |
Problem 2
| AllTalk Technologies manufactures capacitors for cellular base stations and other communications applications. The company's January 2012 flexible budget income statement shows output levels of 6,500, 8,000, and 10,000 units. The static budget was based on expected sales of 8,000 units. | |||||
| ALLTALK TECHNOLOGIES Flexible Budget Income Statement Month Ended January 31, 2012 | |||||
| Per Unit | By Units (Capacitors) | ||||
| 6,500 | 8,000 | 10,000 | |||
| Sales revenue | $24 | $156,000 | $192,000 | $240,000 | |
| Variable expenses | $10 | 65,000 | 80,000 | 100,000 | |
| Contribution margin | $91,000 | $112,000 | $140,000 | ||
| Fixed expenses | 53,000 | 53,000 | 53,000 | ||
| Operating income | $38,000 | $59,000 | $87,000 | ||
| The company sold 10,000 units during January, and its actual operating income was as follows: | |||||
| ALLTALK TECHNOLOGIES Income Statement Month Ended January 31, 2012 | |||||
| Sales revenue | $246,000 | ||||
| Variable expenses | 104,500 | ||||
| Contribution margin | $141,500 | ||||
| Fixed expenses | 54,000 | ||||
| Operating income | $87,500 | ||||
| Requirements: | |||||
| 1. Prepare an income statement performance report for January. | |||||
| 2. What was the effect on AllTalk's operating income of selling 2,000 units more than the static budget level of sales? | |||||
| 3. What is AllTalk's static budget variance? Explain why the income statement performance report provides more useful information to AllTalk's managers than the simple static budget variance. What insights can AllTalk's managers draw from this performance report? |
Problem 3
| Java manufacturers coffee mugs that it sells to other companies for customizing with their own logos. Java prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost of a coffee mug is based on static budget volume of 60,200 coffee mugs per month: | |||
| Direct materials (0.2 lbs @ $0.25 per lb) | $0.05 | ||
| Direct labor (3 minutes @ $0.12 per minute) | 0.36 | ||
| Manufacturing overhead: | |||
| Variable (3 minutes @ $0.05 per minute) | $0.15 | ||
| Fixed (3 minutes @ $0.14 per minute) | 0.42 | 0.57 | |
| Total cost per coffee mug | $0.98 | ||
| Actual cost and production information for July 2012 follow: | |||
| a. Actual production and sales were 62,900 coffee mugs. | |||
| b. Actual direct materials usage was 10,000 lbs., at an actual price of $0.17 per lb. | |||
| c. Actual direct labor usage was 202,000 minutes at a total cost of $30,300. | |||
| d. Actual overhead cost was $10,000 variable and $30,500 fixed. | |||
| e. Marketing and administrative costs were $115,000. | |||
| Requirements: | |||
| 1. Compute the price and efficiency variances for direct materials and direct labor. | |||
| 2. Journalize the usage of direct materials and the assignment of direct labor, including the related variances. | |||
| 3. For manufacturing overhead, compute the variable overhead spending and efficiency variances and the fixed overhead spending and volume variances. | |||
| 4. Journalize the actual manufacturing overhead and the applied manufacturing overhead. Journalize the movement of all production from WIP. Journalize the closing of the manufacturing overhead account. | |||
| 5. Java intentionally hired more-skilled workers during July. How did this decision affect the cost variances? Overall, was the decision wise? |
