Data table Sales Variable Manufacturing Direct Materials Direct Labor (1,025 recliners x $500 each) (1,005 recliners x $495 each) Costs: (6,150 yds. @ $8.50/yd.) (6,300 yds. @ $8.30 / yd.) (10,250 DLHr@ $10.20 / DLHr) (9,850 DLHr @ $10.40 / DLHr) Variable Overhead (6,150 yds. @ $5.10/yd.) (6,300 yds. @ $6.50 / yd.) Fixed Manufacturing Costs: Fixed Overhead Total Cost of Goods Sold Gross Profit Static Budget (1,025 recliners) $ 512,500 52,275 104,550 31,365 Actual Results (1,005 recliners) 62,730 250,920 261,580 $ 497,475 52,290 102,440 40,950 64,730 260,410 237,065
Requirement 2. Compute the cost variance and the efficiency variance for direct materials and for direct labor. For manufacturing
Begin with the cost variances. Select the required formulas, compute the cost variances for direct materials and direct labor, and identify whether each variance is favorable (F) or unfavorable (U). (Round your answers to the
nearest whole dollar. Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC =
standard cost; SQ = standard quantity.)
Formula
Variance
Direct materials cost variance
Direct labor cost variance
Next compute the efficiency variances. Select the required formulas, compute the efficiency variances for direct materials and direct labor, and identify whether each variance is favorable (F) or unfavorable (U). (Round your
answers to the nearest whole dollar. Abbreviations used: AC = actual cost; AQ = actual quantity; FOH =
fixed overhead; SC = standard cost; SQ = standard quantity.)
Formula
Variance
Direct materials efficiency variance
Direct labor efficiency variance
Now compute the variable overhead cost and efficiency variances. Select the required formulas, compute the variable overhead cost and efficiency variances, and identify whether each variance is favorable (F) or unfavorable (U).
(Round your answers to the nearest whole dollar. Abbreviations used: AC = actual cost; AQ = actual quantity; FOH =
fixed overhead; SC = standard cost; SQ = standard quantity; VOH = variable overhead.)
Formula
Variance
VOH cost variance
VOH efficiency variance
Now compute the fixed overhead cost and volume variances. Select the required formulas, compute the fixed overhead cost and volume variances, and identify whether each variance is favorable (F) or unfavorable (U). (Round
your answers to the nearest whole dollar. Abbreviations used: AC = actual cost; AQ = actual quantity; FOH =
fixed overhead; SC = standard cost; SQ = standard quantity.)
Formula
Variance
FOH cost variance
FOH volume variance
Requirement 3. Have McKnight's managers done a good job or a poor job controlling materials, labor, and overhead costs? Why?
The variances computed in Requirement 2 suggest that the managers have done a
" job controlling
materials and labor costs. The
direct materials cost variance and direct labor efficiency variance help
offset the
direct labor cost variance and direct materials efficiency variance. Managers have done a
job controlling overhead costs as evidenced by the fact that
of the overhead variances are
Requirement 4. Describe how McKnight's managers can benefit from the
Standard costing helps managers do the following:
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