Self-Study Problem 14-1 Sales Volume and Flexible-Budget (FB) Variances/JIT Manufacturing [The following information applies to the questions displayed below.] Solid Box Fabrications manufactures boxes for workstations. The firm’s standard cost sheet prior to October of the current year and actual results for October are as follows: Budget Information Standard Price and Variable Costs per Unit Fixed Costs Actual Results October Units 9,700 Sales$50.00 $563,000 Variable costs: Direct materials 5 pounds at $2.50 per pound$12.40 51,400 lb*× $3 =$154,200 Direct labor 0.50 hour at $14.40 per hour 7.20 5,300 hr × $17.20 = 91,160 Manufacturing overhead 2.00 19,000 Selling and administrative 5.00 45,000 Total variable costs$26.60 $309,360 Contribution margin$23.40 $253,640 Fixed costs: Manufacturing (factory) overhead $50,000 $55,000 Selling and administrative 20,000 24,000 Total fixed costs $70,000 $79,000 Operating income $174,640 *Assume that pounds purchased = pounds issued to production (i.e., a JIT inventory policy). In preparing the master budget for October, the firm recognized that several items on the standard cost sheet were expected to change. For example, the selling price of the product was expected to increase by 8%. Suppliers have notified the firm that starting October 1, materials prices would be 5% higher. The labor contract prescribes a 10% increase, starting October 1, on wages and benefits. Fixed manufacturing costs were expected to increase $5,000 for insurance, property taxes, and salaries. Fixed selling and administrative costs were expected to increase as follows: $2,000 in managers’ salaries and $2,000 for advertising during October. The unit sales for October were expected to be 10,400 units. Solid Box Fabrications uses a JIT approach in all of its operations, including materials acquisitions and product manufacturing. Part 1 Required: 1. Prepare the master (static) budget and pro forma budgets for 9,700 units and 11,200 units for October. 2. Calculate and label as favorable or unfavorable the master (static) budget variance (total operating-income variance) for October. Break this variance down into the sales volume variance and the total flexible-budget variance for the period. 3. Compute and label as favorable or unfavorable each of the following variances for October: selling price variance, total variable cost flexible-budget (FB) variance, and total fixed cost variance. 4. Break down the total direct materials flexible-budget variance and the total direct labor flexible-budget variance into their price (rate) and quantity (efficiency) components. Label each component variance as favorable or unfavorable.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Self-Study Problem 14-1 Sales Volume and Flexible-Budget (FB) Variances/JIT Manufacturing [The following information applies to the questions displayed below.] Solid Box Fabrications manufactures boxes for workstations. The firm’s standard cost sheet prior to October of the current year and actual results for October are as follows: Budget Information Standard Price and Variable Costs per Unit Fixed Costs Actual Results October Units 9,700 Sales$50.00 $563,000 Variable costs: Direct materials 5 pounds at $2.50 per pound$12.40 51,400 lb*× $3 =$154,200 Direct labor 0.50 hour at $14.40 per hour 7.20 5,300 hr × $17.20 = 91,160 Manufacturing
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