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Chapter 23: Q1TI (page 1288)

Question:Garland Company expects to sell 600 wreaths in December 2018, but wants to plan for 100 more and 100 less than expected. The wreaths sell for \(5.00 each and have variable costs of \)2.00 each. Fixed costs are expected to be $500 for the month. Prepare a flexible budget for 500, 600, and 700 wreaths.

Short Answer

Expert verified

Answer

The flexible budget is prepared for the quantities 500, 600, and 700 units with operating income of $1,000, $1,300, and $1,600 respectively.

Step by step solution

01

Definition of variable costs

The variable costs are defined as the cost incurred by the company which changes with the change in volume of sales or the production.

02

Computation of direct material efficiency variance

Garland Company
Flexible Budget
For the month Ended December 31, 2018

UNITS

Budget amount per unit ($)

500 ($)

600 ($)

700 ($)

Sales Revenue

5.00

$2,500

$3,000

$3,500

Variable costs

2.00

1,000

1,200

1,400

Contribution Margin

1,500

1,800

2,100

Fixed cost

500

500

500

Operating Income

1,000

1,300

1,600

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Most popular questions from this chapter

Computing overhead variances

Refer to the Morgan, Inc. data in Short Exercise S23­9. Last month, Morgan reported the following actual results: actual variable overhead, \(10,800; actual fixed overhead, \)2,770; actual production of 7,000 units at 0.20 direct labor hours per unit. The standard direct labor time is 0.25 direct labor hours per unit (1,300 static direct labor hours / 5,200 static units).

Requirements

1. Compute the overhead variances for the month: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance.

2. Explain why the variances are favorable or unfavorable.

Question: How is a flexible budget used?

Question:Match the variance to the correct definition.

Variance Definition

2. Cost variance

3. Efficiency variance

4. Flexible budget variance

5. Sales volume variance

6. Static budget variance

a. The difference between the expected results in the flexible budget for the actual units sold and the static budget.

b. The difference between actual results and the expected results in the flexible budget for the actual units sold.

c. Measures how well the business keeps unit costs of material and labor inputs within standards.

d. The difference between actual results and the expected results in the static budget.

e. Measures how well the business uses its materials or human resources

Question: What is a static budget performance report?

Question:List the fixed overhead variances, and briefly describe each.
See all solutions

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