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Chapter 23: Q15RQ (page 1305)
Question:List the fixed overhead variances, and briefly describe each.
Answer
The fixed overhead variances can be in the form of fixed overhead cost variance and fixed overhead volume variance.
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Matching terms
Match each term to the correct definition.
Terms Definitions
a. Benchmarking
b. Efficiency variance
c. Cost variance
d. Standard
1. Measures whether the quantity of materials or laborused to make the actual number of outputs is within thestandard allowed for the number of outputs.
2. Uses standards based on best practice.
3. Measures how well the business keeps unit costs ofmaterials and labor inputs within standards.
4. A price, cost, or quantity that is expected under normalconditions.
Question:What is management by exception?
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.
Review your results from Problem P23-28A. Moss’s standard and actual sales price per mug is $3. Prepare the standard cost income statement for July 2018.
Question:Tipton Company manufactures shirts. During June, Tipton made 1,200 shirts and gathered the following additional data:
Direct materials cost standard \(6.00 per yard of fabric
Direct materials efficiency standard 1.50 yards per shirt
Actual amount of fabric purchased and used 1,680 yards
Actual cost of fabric purchased and used \)10,500
Direct labor cost standard \(15.00 per DLHr
Direct labor efficiency standard 2.00 DLHr per shirt
Actual amount of direct labor hours 2,520 DLHr
Actual cost of direct labor \)36,540
Calculate the following variances:
7. Direct materials cost variance
8. Direct materials efficiency variance
9. Total direct materials variance
10. Direct labor cost variance
11. Direct labor efficiency variance
12. Total direct labor variance
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