Chapter 23, Problem P23.31BPGB

Preparing a flexible budget computing standard cost variances

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

The company’s performance report includes the following selected data:
		Static Budget (1,000 recliners)	Actual Results(980 recliners)
Sales	(1,000 recliners × $505 each)	$ 505,000
	(980 recliners × $490 each)		$ 480,200
Variable Manufacturing Costs
Direct Materials	(6,000 yds. @ $8.70/yd.)	52,200
	(6,143 yds. @ $8.50/yd.)		52,216
Direct Labor	(10,000 DLHr @ $9.00/DLHr)	90,000
	(9,600 DLHr @ $9.10/DLHr)		87,360
Variable Overhead	(6,000 yds. @ $5.00/yd)	30,000
	(6,143 yds @ $6.40/yd.)		39,315
Fixed Manufacturing Costs
Fixed Overhead
		60,000	62,000
Total Cost of Goods Sold		232,200	240,891
Gross Profit
		$ 272,800	$ 239,309

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 Root’s managers done a good job or a poor job controlling materials, labor, and overhead costs? Why?
4. Describe how Root’s managers can benefit from the standard cost system.