The following summary data are from a performance report for Sterling Company for May, during which 7,200 units were produced. The budget reflects the company's normal capacity of 7,500 units. Actual Cost Budget 7,500 units 7,200 units Variances $ Type Direct material Direct labor Variable overhead Fixed overhead $171,000 $175,000 $(4,000) Favorable 346,500 350,000 (3,500) Favorable 123,000 120,000 3,000 Unfavorable 500 Unfavorable Total 90,500 90,000 $731,000 $735,000 $(4,000) a. Prepare a new performance report using flexible budgeting. Round all amounts to the nearest dollar. Direct material Direct labor Variable overhead Fixed overhead Totals Actual Costs Flexible Budget 0 $ 0 $ 0 0 0 0 0 0$ 0 0$ Variance Туре 0 0 0 0 0 b. Which of the two performance reports should Sterling Company management use to measure the company's operating efficiency in May?
The following summary data are from a performance report for Sterling Company for May, during which 7,200 units were produced. The budget reflects the company's normal capacity of 7,500 units. Actual Cost Budget 7,500 units 7,200 units Variances $ Type Direct material Direct labor Variable overhead Fixed overhead $171,000 $175,000 $(4,000) Favorable 346,500 350,000 (3,500) Favorable 123,000 120,000 3,000 Unfavorable 500 Unfavorable Total 90,500 90,000 $731,000 $735,000 $(4,000) a. Prepare a new performance report using flexible budgeting. Round all amounts to the nearest dollar. Direct material Direct labor Variable overhead Fixed overhead Totals Actual Costs Flexible Budget 0 $ 0 $ 0 0 0 0 0 0$ 0 0$ Variance Туре 0 0 0 0 0 b. Which of the two performance reports should Sterling Company management use to measure the company's operating efficiency in May?
Chapter1: Financial Statements And Business Decisions
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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.
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Transcribed Image Text:Using Flexible Budgets
The following summary data are from a performance report for Sterling Company for May, during which 7,200 units were produced. The budget reflects the company's normal capacity of 7,500 units.
Actual Cost Budget
Direct material
Direct labor
Variable overhead
Fixed overhead
Total
7,500
Variances
$
Туре
7,200
units
units
$171,000 $175,000 $(4,000) Favorable
346,500 350,000 (3,500) Favorable
123,000 120,000 3,000 Unfavorable
90,500 90,000
500 Unfavorable
$731,000 $735,000 $(4,000)
a. Prepare a new performance report using flexible budgeting. Round all amounts to the nearest dollar.
Direct material
Direct labor
Variable overhead
Fixed overhead
Totals
Actual
Costs
Flexible
Budget
0 $
0 $
0
0
0
0
0 $
0
0
0 $
Variance
Туре
0
0
0
0
b. Which of the two performance reports should Sterling Company management use to measure
the company's operating efficiency in May?
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Step 1: Introduction to flexible budget:
VIEWStep 2: Working note- Determining the cost per unit for the variable costs:
VIEWStep 3: Requirement a- Preparing performance report using flexible budgeting:
VIEWStep 4: Requirement b- Recommending performance report to be used to measure operating efficiency:
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