Rocky Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. Rocky allocates overhead based on yards of direct materials. The company's performance report includes the following selected data:

Requirements 

1. Prepare a flexible budget based on the actual number of recliners sold.

2. Compute the price variance and the efficiency variance for direct materials and for direct labor. For manufacturing overhead, compute the total variance, the flexible budget variance, and the production volume variance.

3. Have Rocky's managers done a good job or a poor job controlling materials and labor costs? Why?

4. Describe how Rocky's managers can benefit from the standard costing system. 

Transcribed Image Text:

Static Budget Actual Results (1,000 recliners) (980 recliners) Sales (1,000 recliners x $500) (980 recliners x $490) Variable manufacturing costs: Direct materials (6,000 yds. x $8.90) (6,150 yds. x $8.70) $500,000 $480,200 53,400 53,505 Direct labor (10,000 hrs. x $9.00) 90,000 (9,600 hrs. x $9.15) 87,840 Variable overhead (6,000 yds. x $5.00) 30,000 (6,150 yds. x $6.40) 39,360 Fixed manufacturing costs: Fixed overhead 60,000 62,000 Total cost of goods sold 233,400 242,705 Gross profit $266.600 $237,495