Chapter 23, Problem P23.31BPGB

Preparing a flexible budget and computing standard cost variances

Learning Objectives 1, 2, 3, 4

2. VOH Eff.Var.$1,377 U

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: Static Budget Actual Results (1,025 recliners) (1,005 recliners)

Sales	(1,025 recliners x 5500 each)(1,005 recliners x $495 each)	$512,500	$497,475
Variable Manufacturing Costs
Direct Materials	(6,150 yds.@$8.50yard)	$2,275
	(6,300 yds.@$8.30yard)		$2,290
Direct Labor	(10,250 DLH@$9.20/DLHr)	94,300
	(9,850 DLHr@$9.40/DLHr)		92,590
Variable Overhead	(6,150 yds.@55.10/yard)	31,345

(6,300 yds. @$6.50/yard) 40,950

Fixed Manufacturing Costs:

Fixed Overhead	62,730	64,730
Total Cost of Goods Sold	240,670	250,560
Gross Profit	$271,830	$246,915

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 McKnight’s managers done a good job or a poor job controlling materials, labor, and overhead costs? Why’

4. Describe how McKnight’s managers can benefit from the standard cost system,