Static Budget Actual Results (1,025 recliners) (1,005 recliners) $ 512,500 Sales (1,025 recliners x $500 each) (1,005 recliners x $495 each) $ 497,475 Variable Manufacturing Costs: Direct Materials (6,150 yds. e $8.50lyard) (6,300 yds. O $8.30lyard) 52,275 52,290 Direct Labor (10,250 DLHr e $9.20/DLHr) 94,300 (9,850 DLHr e $9.40/DLHr) 92,590 Variable Overhead (6,150 yds. e $5.10yard) (6,300 yds. e $6.50lyard) 31,365 40,950 Fixed Manufacturing Costs: Fixed Overhead 62,730 64,730 Total Cost of Goods Sold 240,670 250,560 Gross Profit $ 271,830 $ 246,915
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 and computing
McKnight Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. Mcknight 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 Mcknight’s managers done a good job or a poor job controlling materials, labor, and overhead costs? Why?
- Describe how McKnight’s managers can benefit from the standard cost system.
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