John Richardson is the manufacturing production supervisor for Benson Tool Works, a company that manufactures hand tools formechanics. Trying to explain why he did not get the year-end bonus that he had expected, he told his wife, "This is the dumbest placeI've ever worked. Last year the company set up this budget assuming it would sell 150,600 units. Well, it sold only 140,600. Thecompany lost money and gave me a bonus for not using as much materials and labor as was called for in the budget. This year, thecompany has the same 150,600 units goal and it sells 160,600. The company's making all kinds of money. You'd think I'd get this bigfat bonus. Instead, management tells me I used more materials and labor than was budgeted. They said the company would havemade a lot more money if I'd stayed within my budget. I guess I gotta wait for another bad year before I get a bonus. Like I said, this isthe dumbest place I've ever worked."Benson's master budget and the actual results for the most recent year of operating activity follow.Number of units.Sales revenueVariable manufacturing costsMaterialsLaborOverheaVariable selling, general and administrative costs.Contribution marginFixed costsManufacturing overheadSelling, general and administrative costsNet incomeMasterBudget150,600$33, 132,000(4,819,200)(4,216,800)(2,108,400)(5,271,000)16,716,600(7,861,320))(6,997,000)$ 1,858,280ActualResults160,600$35,653,200(5,020,000)(4,417,000)(2,299,000)(5,770,000)18,147,200Variances For U10,000$2,521,200FU500,800200,200190,600199,000 U1,430,600 FUU(7,780,000)(7,041,000)$ 3,326,200 $1,467,920 F81,32044,000FURequiredc. Prepare a flexible budget and recompute the budget variances. (Indicate the effect of each variance by selecting "F" for favorable,"U" for unfavorable, and "None" for no effect (i.e.. zero variance).) variable selling, general and administrative costsContribution marginFixed costsManufacturing overheadSelling, general and administrative costsNet incomeNumber of UnitsSales revenueVariable manufacturing costsMaterialsLaborOverheadVariable Selling, general & administrativeContribution marginFixed costsManufacturing overheadSelling, general & administrativeNet income15,211,000) (5,110,000)16,716,600 18,147,200Requiredc. Prepare a flexible budget and recompute the budget variances. (Indicate the effect of each variance by selecting "F" for favorable,"U" for unfavorable, and "None" for no effect (i.e., zero variance).)$(7,861,320) (7,780,000)(6,997,000) (7,041,000)$ 1,858,280Flexible Budget Actual Results150,600160,6003,313,200 $ 35,653,200$(5,020,000)(4,417,000)(2,299,000)(5,770,000)18,147,200(7,780,000)(7,041,000)3,326,200VariancesNoneF$ 3,326,200 $1,467,920 FFFUNoneU199,0001,430,600F81,32044,000FUFFU

A flexible budget is one which adjusts with changes in volume. Under flexible budget, variable cost…

John Richardson is the manufacturing production supervisor for Benson Tool Works, a company that manufactures hand tools for mechanics. Trying to explain why he did not get the year-end bonus that he had expected, he told his wife, "This is the dumbest place I've ever worked. Last year the company set up this budget assuming it would sell 150,600 units. Well, it sold only 140,600. The company lost money and gave me a bonus for not using as much materials and labor as was called for in the budget. This year, the company has the same 150,600 units goal and it sells 160,600. The company's making all kinds of money. You'd think I'd get this big fat bonus. Instead, management tells me I used more materials and labor than was budgeted. They said the company would have made a lot more money if I'd stayed within my budget. I guess I gotta wait for another bad year before I get a bonus. Like I said, this is the dumbest place I've ever worked." Benson's master budget and the actual results for the most recent year of operating activity follow. Number of units. Sales revenue Variable manufacturing costs Materials Labor Overhea Variable selling, general and administrative costs Contribution margin Fixed costs Manufacturing overhead Selling, general and administrative costs Net income Master Budget 150,600 $33, 132,000 Actual Results 160,600 $35,653,200 (4,819,200) (5,020,000) (4,216,800) (4,417,000) (2,108,400) (2,299,000) (5,271,000) (5,770,000) 16,716,600 18,147,200 (7,861,320)) (6,997,000) $ 1,858,280 Variances For U 10,000 $2,521,200 F 500,800 U 200,200 190,600 U U 199,000 1,430,600 U F (7,780,000) (7,041,000) $ 3,326,200 $1,467,920 F 81,320 44,000 F U Required c. Prepare a flexible budget and recompute the budget variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q