Static Budget Actual Results (1,000 recliners) (980 recliners) Sales (1,000 recliners x $505 each) $ 505,000 (980 recliners x S480 each) $ 470,400 Variable Manufacturing Costs: Direct Materials (6,000 yds. e 58.60)yd.) 51,600 (6,143 yds. e S8.40yd.) 51,601 Direct Labor (10,000 DLHr e $9.20/DLHr) 92,000 (9,600 DLHr e $9.30/DLHr) 89,280 Variable Overhead (6,000 yds. e $5.20lyd.) 31,200 (6,143 yds. O $6.60lyd.) 40,544 Fixed Manufacturing Costs: Fixed Overhead 60,600 62,600 Total Cost of Goods Sold 235,400 244,025 Gross Profit $ 269,600 $ 226,375
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.
Preparing a flexible budget computing
Morton Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. Morton allocates
Requirements
- Prepare a flexible budget based on the actual number of recliners sold.
- Compute the cost variance and the efficiency variance for direct materials and for direct labor. For manufacturing overhead, compute the variable overhead cost, variable overhead efficiency, fixed overhead cost, and fixed overhead volume variances. Round to the nearest dollar.
- Have Morton’s managers done a good job or a poor job controlling materials, labor, and overhead costs? Why?
- Describe how Morton’s managers can benefit from the standard cost system.
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