McKnight Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. McKnight allocates overhead based on yards of direct materials. The company's performance report includes the following selected data: (Click the icon to view the selected data.) Read the requirements Requirement 1. Prepare a flexible budget based on the actual number of recliners sold. (Round budget amounts per unit to the nearest cent.) McKnight 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 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 overtiead 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 quantitv.) Choose from any list or enter any number in the input fields and then continue to the next question, Formula Variance Direct materials cost variance II Direct labor cost variance I 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 AN 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 = 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 II FOH volume variance II Requirement 3. Have McKnight's managers done a good job or a poor job controlling materials, labor, and overhead costs? Why? V direct materials cost variance and direct labor efficiency variance help offset the The variances computed in Requirement 2 suggest that the managers have done a Vjob controlling materials and labor costs. The | Vdirect labor cost variance and direct materials efficiency variance. Managers have done a v job controlling overhead ( the fact that of the overhead variances are favorable Requirement 4. Describe how McKnight's managers can benefit from the standard costing system. unfavorable Standard costing helps managers do the following: Formula Variance a poor job controlling materials, labor, and overhead costs? Why? Create new products Decrease accounting costs Develop more efficient production methods Identify performance standards Increase production levels Increase sales volume Prepare the master budget Set sales prices of products and services Set target levels of performance for flexible budgets agers have done a V job controlling materials and labor costs. The V direct materials cost variance and direct labor efficiency variance help offset the ciency variance. Managers have done a V job controlling overhead costs as evidenced by the fact that of the overhead variances are t from the standard costing system. Data Table Static Budget (1,000 recliners) Actual Results (980 recliners) $ 515,000 485,100 53,400 53,444 Sales (1,000 recliners x $ 515 each) (980 recliners x $ 495 each) Variable Manufacturing Costs: Direct Materials (6,000 yds. @ $ 8.90 / yd.) (6,143 yds. @ $ 8.70 / yd.) Direct Labor (10,000 DLHr @ $ 9.30 / DLHr) (9,600 DLHr @ $ 9.50 / DLHr) Variable Overhead (6,000 yds. @ $ 5.20 / yd.) (6,143 yds. @ $ 6.60 / yd.) Fixed Manufacturing Costs: 93,000 91,200 31,200 40,544 62,600 Fixed Overhead Total Cost of Goods Sold 60,600 238,200 276,800 $ 247,788 237,312 Gross Profit Print Print Done Done Requirements 1. 2. Prepare a flexible budget based on the actual number of recliners sold. 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. Have McKnight's managers done a good job or a poor job controlling materials, labor, and overhead costs? Why? Describe how McKnight's managers can benefit from the standard costing system. Print Print Done Done