Chapter 23, Problem P23.26APGA

Preparing a flexible budget computing standard cost variances Learning Objectives 1,2,3,4

2. VOH Eff.Var. $1,368 U

Morton Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. Worton allocates overhead based on yards of direct materials. The company's performance report includes the following selected data:
Static Budget Actual Results (1,000 recliners) (980 recliners)

Sales	(1,000 recliners x $505 each)	$505,000
(980 recliners x 5480 each)Variable Manufacturing Costs:Direct Materials (6,000 yds. @$8.60)	$1,600	$470.400
Direct labor	(6,143 yds.@$8.40yd)(10,000 DLHr@ $9.20/DLHr)	92,000	$1,601
Variable Overhead	(9,600 DLHr@$9.20/DLHr)(6,000 yds.@55.20/yd)	31,200	89,280

(6,143 yds@ $6.60/yd) 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

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 Morton's managers done a good job or a poor job controlling materials, labor, and overhead costs⁷Why?
4. Describe how Horton’s managers can benefit from the standard cost system.