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Chapter 23: Q15E (page 1309)

Office Plus sells its main product, ergonomic mouse pads, for \(13 each. Its variable cost is \)5.10 per pad. Fixed costs are \(205,000 per month for volumes up to 65,000 pads. Above 65,000 pads, monthly fixed costs are \)250,000. Prepare a monthly flexible budget for the product, showing sales revenue, variable costs, fixed costs, and operating income for volume levels of 45,000, 55,000, and 75,000 pads.

Short Answer

Expert verified

The flexible budget for office plus is prepared with volume levels of 45,000, 55,000 and 75,000 pads.

Step by step solution

01

Definition of flexible budget

A flexible budget is a budget prepared by the company's management that adjusts with any variations in the the activity.

02

Preparation of flexible budget

Flexible Budget

Particulars

Per unit ($)

45,000 ($)

55,000 ($)

75,000 ($)

  1. Sales

13.00

585,000

715,000

975,000

  1. Variable cost

5.10

229,500

280,500

382,500

  1. Contribution Margin

7.90

355,500

434,500

592,500

  1. Fixed Cost

205,000

205,000

250,000

  1. Income/(loss) (C – D)

150,500

229,500

342,500

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Most popular questions from this chapter

Question: List the variable overhead variances, and briefly describe each

Question:Match the product cost variance with the manager most probably responsible. Some answers may be used more than once. Some answers may not be used.

Variance Manager

19. Variable overhead cost variance

20. Direct materials efficiency variance

21. Direct labor cost variance

22. Fixed overhead cost variance

23. Direct materials cost variance

a. Human resources

b. Purchasing

c. Production

Preparing a flexible budget and computing standard cost variances

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 (1,025 recliners)

Actual Results (1,005 recliners)

Sales

(1,025 recliners * \(500 each)

\)512,500

(1,005 recliners * \(495 each)

\)497,475

Variable Manufacturing Costs:

Direct Materials

(6,150 yds. @ \(8.50/yard)

52,275

(6,300 yds. @ \)8.30/yard)

52,290

Direct Labor

(10,250 DLHr @ \(9.20/DLHr)

94,300

(9,850 DLHr @ \)9.40/DLHr)

92,590

Variable Overhead

(6,150 yds. @ \(5.10/yard)

31,365

(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.

Understanding variance relationships

Complete the table below for the missing variances.

Total Flexible Budget Product Cost Variance

(a)

Total direct material variance

(b)

Total direct labor variance

(c)

Total Manufacturing Overhead Variance

(d)

Direct material cost variance

Direct material efficiency variance

Direct Labor Cost Variance

Direct Labor Efficiency Variance

Total Variable Overhead Variance

Total fixed overhead variance

\(310F

\)165U

\(160U

\)415F

(e)

(f)

Variable Overhead Cost Variance

Variable Overhead Efficiency Variance

Fixed Overhead Cost Variance

\(525U

\)575F

$50F

Murphy Company managers received the following incomplete performance report:

Units Actual Results Flexible Budget Variance Static Budget Flexible Budget Sales Volume Variance Sales Revenue Contribution Margin Fixed Expenses Operating Income 35,000 (a) (b) 5,000 F \( 29,000 \) 14,000 105,000 0 \( 219,000 \) 27,000 F 85,000 13,000 MURPHY COMPANY Flexible Budget Performance Report For the Year Ended July 31, 2018 134,000 14,000 35,000 \( 35,000 100,000 \) 219,000 84,000 135,000 (c) (d) (e) (f) (h) (g) (i) (j) (k) (l)

Complete the performance report. Identify the employee group that may deserve praise and the group that may be subject to criticism. Give your reasoning.
See all solutions

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