Chapter 23, Problem 31BP

McKnight Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. McKnight allocates overhead based on yards of direct materials. The company’s performance report includes the following selected data:

Requirements

1. 1. Prepare a flexible budget based on the actual number of recliners sold.
2. 2. 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.
3. 3. Have McKnight’s managers done a good job or a poor job controlling materials, labor, and overhead costs? Why?
4. 4. Describe how McKnight’s managers can benefit from the standard cost system.