Chapter 23, Problem P23.26APGA

Preparing a flexible budget computing standard cost variances

Kyler Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. Kyler allocates overhead based on yards of direct materials.

The company’s performance report includes the following selected data:
		Static Budget (1,025 recliners)	Actual Results (1,005 recliners)
Sales	(1,025 recliners × $495 each)	$ 507,375
	(1,005 recliners × $485 each)		$ 487,425
Variable Manufacturing Costs
Direct Materials	(6,150 yds. @ $8.90/yd.)	54,735
	(6,300 yds. @ $8.70/yd.)		54,810
Direct Labor	(10,250 DLHr @ $9.00/DLHr)	92,250
	(9,850 DLHr @ $9.10/DLHr)		89,635
Variable Overhead	(6,150 yds. @ $5.10/yd)	31,365
	(6,300 yds @ $6.50/yd.)		40,950
Fixed Manufacturing Costs
Fixed Overhead
		62,730	64,730
Total Cost of Goods Sold		241,080	250,125
Gross Profit
		S 266,295	5 237,300

Requirements

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