Ch06 Excel Templates - assignment(2) (version 1) PDF

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Problem 6-31 – Comprehensive flexible budgets and variance analysis Name: Instructor Course: Date: Pressure Reducers, Inc., produces and sells lumbar support cushions for office chairs using a special foam that molds to a person’s back. Since all products are made to order, the only inventory the company maintains is raw materials. Thus, all costs of production are recognized in the period in which they are incurred. The following annual performance report was prepared from the company’s accounting records: Units sold Sales revenue Cost of goods sold Gross margin Selling and administrative expenses Operating income

Actual 14,800 $3,034,000 2,064,790 969,210 288,625 $680,585

Budget 15,000 $3,000,000 2,075,000 925,000 290,000 $635,000

Actual $195,000 140,000

Budget $200,000 140,000

Variance 200 U $34,000 F (10,210) F 44,210 F (1,375) F $45,585 F

The following fixed costs are included in these amounts. Cost of goods sold Selling and administrative expenses

Hank Martinez, Pressure Reducers’ CFO, used the following standard cost card in preparing the budget and thought he had done a good job estimating production and sales. He wonders why the variable cost of goods sold deviated from that budget. Standard Quantity per Unit 5 yards 2.5 hours 2.5 hours

Direct material Direct labor Variable overhead

Standard Price $10 per yard $16 per DLH $14 per DLH

Total Cost per Unit # # # #

Actual variable costs incurred during the year were as follows. Direct material purchased and used (78,400 yards @ $9.80) Direct labor cost incurred (37,260 DLH @ $15.50) Variable overhead costs incurred

$768,320 577,530 523,940 $1,869,790

Directions: a. Prepare a performance report that isolates Pressure Reducers’ flexible budget and sales volume variances.

Unit sales Sales revenue Less variable expenses: Cost of goods sold Selling & administrative Contribution margin Less fixed expenses: Cost of goods sold Selling & administrative Total fixed expenses Operating profit

Actual Results 14,800 $ 3,034,000

Flexible Budget Variance

Flexible Budget

Sales Volume Variance

Static Budget 15,000 3,000,000

$

F U

1,869,790 148,625 2,018,415 1,015,585

1,875,000 150,000 2,025,000 975,000

195,000 140,000 335,000 680,585

$

200,000 140,000 340,000 635,000

$

b. Calculate the direct materials price and quantity variances. Solve: AQ x AP

AQ x SP

SQ x SP

AQ x SP

SQ x SP

AQ x SP

SQ x SP

Direct material price variance Direct material quantity variance Direct material flexible budget variance c. Calculate the direct labor rate and efficiency variances. Solve: AQ x AP Direct labor rate variance Direct labor efficiency variance Direct material flexible budget variance d. Calculate the variable overhead spending and efficiency variances. Solve: AQ x AP Variable OH spending variance Variable OH efficiency variance Variable overhead flexible budget variance e. Show that the direct materials, direct labor, and variable overhead variances equals the flexible budget variance for variable cost of goods sold in part (a). Solve: Direct materials variance Direct labor variance Variable overhead variance Total

f. Prepare a memo to Hank Martinez explaining why the actual variable cost of goods sold differed from the budgeted amount. Answer: TO: Hank Martinez FROM: John Student DATE: January 15, 20XX RE: Cost of goods sold variance analysis...