Data table

		Static Budget (1,000 recliners)	Actual Results (980 recliners)
Sales	(1,000 recliners x $505 each)	$505,000
	(980 recliners x $475 each)		$465,500
Variable Manufacturing Costs:
Direct Materials	(6,000 yds. @ $8.70 / yd.)	52,200
	(6,143 yds. @ $8.50 / yd.)		52,216
Direct Labor	(10,000 DLHr @ $12.20 / DLHr)	122,000
	(9,600 DLHr @ $12.40 / DLHr)		119,040
Variable Overhead	(6,000 yds. @ $5.20 / yd.)	31,200
	(6,143 yds. @ $6.60 / yd.)		40,544
Fixed Manufacturing Costs:
Fixed Overhead		60,600	62,600
Total Cost of Goods Sold		266,000	274,400
Gross Profit		$239,000	$191,100

Requirement 1. Prepare a flexible budget based on the actual number of recliners sold. (Round budget amounts per unit to the nearest cent.)

Smith Recliners
Flexible Budget
	Budget
	Amounts
	per Unit
Actual Units (Recliners)
Sales Revenue
Variable Manufacturing Costs:
Direct Materials
Direct Labor
Variable Overhead
Fixed Manufacturing Costs:
Fixed Overhead
Total Cost of Goods Sold
Gross Profit

Part 2

Requirement 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.

Begin with the cost variances. Select the required formulas, compute the cost variances for direct materials and direct labor, and identify whether each variance is favorable (F) or unfavorable (U). (Round your answers to the nearest whole dollar. Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.)

		Formula		Variance
Direct materials cost variance	=		=
Direct labor cost variance	=		=

Part 3

Next compute the efficiency variances. Select the required formulas, compute the efficiency variances for direct materials and direct labor, and identify whether each variance is favorable (F) or unfavorable (U). (Round your answers to the nearest whole dollar. Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.)

		Formula		Variance
Direct materials efficiency variance	=		=
Direct labor efficiency variance	=		=

Part 4

Now compute the variable overhead cost and efficiency variances. Select the required formulas, compute the variable overhead cost and efficiency variances, and identify whether each variance is favorable (F) or unfavorable (U). (Round your answers to the nearest whole dollar. Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity; VOH = variable overhead.)

		Formula		Variance
VOH cost variance	=		=
VOH efficiency variance	=		=

Part 5

Now compute the fixed overhead cost and volume variances. Select the required formulas, compute the fixed overhead cost and volume variances, and identify whether each variance is favorable (F) or unfavorable (U). (Round your answers to the nearest whole dollar. Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.)

		Formula		Variance
FOH cost variance	=		=
FOH volume variance	=		=

Part 6

Requirement 3. Have

Smith's

managers done a good job or a poor job controlling materials, labor, and overhead costs? Why?

The variances computed in Requirement 2 suggest that the managers have done a

good

poor

reasonable

job controlling materials and labor costs. The

favorable

unfavorable

direct materials cost variance and direct labor efficiency variance help offset the

favorable

unfavorable

direct labor cost variance and direct materials efficiency variance. Managers have done a

good

poor

reasonable

job controlling overhead costs as evidenced by the fact that

all

none

some

of the overhead variances are

favorable

unfavorable

.

Part 7

Requirement 4. Describe how

Smith's

managers can benefit from the standard costing system.

Standard costing helps managers do the following: