ADDESSI CORPORATION

ADDESSI CORPORATION manufactures a full line of chairs. ADDESSI uses a standard costing system to set attainable standards for direct materials, direct labor and overhead costs. ADDESSI reviews and revises standards annually. Department managers, whose evaluations and bonuses are affected by their departments performance, are held responsible to explain variances in their department reports.

Recently the manufacturing variances have caused some concern. For no apparent reason, unfavorable material variances and labor variances have occurred. At the monthly staff meeting, you are asked to explain the variances and suggest ways of improving performance.

The following information is available:

Actual Results Planning Budget Amounts

Units Sold 7,275 7,500

Revenues $596,550 $600,000

Direct materials and direct labor costs ??? $324,000

Fixed manufacturing costs* $108,398 $112,500

* All manufacturing overhead cost is fixed; none is variable.

Gross margin ??? ???

Additional information below is available from the planning budget:

Direct material A: Planning budget cost of $49,500. The standard input for 2017 is 3 pounds per chair.

Direct material B: Planning budget cost of $139,500. The standard input for 2017 is 6 pounds per chair.

Direct labor: Planning budget cost of $135,000. The standard input for 2017 is 1.2 hours per chair.

The actual manufacturing costs for direct materials and direct labor are:

Direct material A: Actual cost of $55,872. The actual pounds for 2017 is 3.2 pounds per chair.

Direct material B: Actual cost of $150,738. The actual pounds for 2017 is 7 pounds per chair.

Direct labor: Actual cost of $145,355. The actual labor rate was $14.80 per hour.

REQUIRED:

Prepare a planning budget for 2017.

Prepare a flexible budget for 2017, based on the activity level of the year.

Prepare an actual income statement for 2017.

Prepare a flexible budget performance report for 2017, showing (1) activity variances and (2) revenue and spending variances.

If you were on the board of directors of ADDESSI CORPORATION, would you be pleased or upset with the 2017 performance? Explain your answer.