Download an Excel template for this problem online in MyAccountingLab or at http://www.pearsonhighered.com/Horngren. Pilchuck Company manufactures tote bags and has provided the following information for September 2018:

Units

Actual Results

Static Budget

Static Budget

11,000

12,000

Sales Revenue

\(368,000

\)384,000

Variable Costs

183,000

198,000

Contribution Margin

185,000

186,000

Fixed Costs

76,000

77,184

Operating Income

\(109,000

\)108,816

  1. Requirements
  2. Prepare a flexible budget performance report, including the heading. Use the ABS function when calculating variances, and use the drop-down selections for F or U when describing the variances.
  3. Calculate the Static Budget Variance for operating income, and label it as a F (favorable) or U (unfavorable) variance.

Short Answer

Expert verified
  1. Only variable costsare depicted as favorable.
  2. Static Budget Variance for operating income = $184

Step by step solution

01

Meaning of Budget

Budgeting is the practice of planning for the future. This procedure aids managers in planning for the future and maintaining control over the organization's operations.

02

(1) Preparing a flexible budget

Pilchuck Company

Flexible budget performance report

The month ended September 2018

Column (1)

Column 2

Col. 1- Col. 3

Column 3

Column 4

Col. 3-Col. 5

Column 5

Budgeted

Amounts

Per unit

Actual results

Flexible

Budget

Variance

F or

U

Flexible

Budget

Sales volume

Variance

F or U

Static Budget

Units

11,000

11,000

12,000

Sales

Revenue

$32.00

$368,000

$16,000

F

$ 352,000

$32,000

U

$384,000

Variable

Costs

$16.50

183,000

1,500

U

181,500

16,500

F

198,000

Contribution

Margin

185,000

14,500

F

170,500

15,500

U

186,000

Fixed Cost

76,000

1,184

F

77,184

0

77,184

Operating

Income

$109,000

$ 15,684

F

$ 93,316

15,500

U

$1,08,816

03

(2) Calculating Static Budget Variance

Static Budget Variance for operating income

Amount

$184 (Column 1-Column 5)

F or U

F

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Most popular questions from this chapter

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

Computing and journalizing standard cost variances

Moss manufactures coffee mugs that it sells to other companies for customizing with their own logos. Moss prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost of a coffee mug is based on static budget volume of 59,800 coffee mugs per month:

Direct material (0.2 lbs. @\(0.25 per lb)

\)0.05

Direct Labor (3 minutes @ \(0.11 per minute)

0.33

Manufacturing Overhead:

Variable (3 minutes @ \)0.06 per minute)

\(0.18

Fixed (3 minutes @ \)0.13 per minute)

0.39

0.57

Total Cost per Coffee Mug

\(0.95

Actual cost and production information for July 2018 follows:

a. There were no beginning or ending inventory balances. All expenditures were on account.

b. Actual production and sales were 62,500 coffee mugs.

c. Actual direct materials usage was 11,000 lbs. at an actual cost of \)0.17 per lb.

d. Actual direct labor usage was 197,000 minutes at a total cost of \(25,610.

e. Actual overhead cost was \)10,835 variable and \(29,765 fixed.

f. Selling and administrative costs were \)95,000.

Requirements

1. Compute the cost and efficiency variances for direct materials and direct labor.

2. Journalize the purchase and usage of direct materials and the assignment of direct labor, including the related variances.

3. For manufacturing overhead, compute the variable overhead cost and efficiency variances and the fixed overhead cost and volume variances.

4. Journalize the actual manufacturing overhead and the allocated manufacturing overhead. Journalize the movement of all production costs from Work­-in­-Process Inventory. Journalize the adjusting of the Manufacturing Overhead account.

5. Moss intentionally hired more highly skilled workers during July. How did this decision affect the cost variances? Overall, was the decision wise?

Question:What is a flexible budget performance report?

Journalizing materials entries

The following direct materials variance analysis was performed for Moore.

Requirements

1. Record Moore’s direct materials journal entries. Assume purchases were made on the account.

2. Explain what management will do with this variance information

Martin, Inc. manufactures lead crystal glasses. The standard direct labor time is 0.5 hours per glass, at a cost of \(18 per hour. The actual results for one month’s production of 6,500 glasses were 0.2 hours per glass, at a cost of \)11 per hour. Calculate the direct labor cost variance and the direct labor efficiency variance.

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