Question
Preston Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. Preston allocates overhead based on yards of direct materials. The company's
Preston Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. Preston allocates overhead based on yards of direct materials. The company's performance report includes the following selected data: Static Budget Actual Results (1,025 recliners) (1,005 recliners) Sales (1,025 recliners x $510 each) $522,750 (1,005 recliners x $495 each) $497,475 Variable Manufacturing Costs: Direct Materials (6,150 yds. @ $8.80 / yd.) 54,120 (6,300 yds. @ $8.60 / yd.) 54,180 Direct Labor (10,250 DLHr @ $9.30 / DLHr) 95,325 (9,850 DLHr @ $9.40 / DLHr) 92,590 Variable Overhead (6,150 yds. @ $5.10 / yd.) 31,365 (6,300 yds. @ $6.50 / yd.) 40,950 Fixed Manufacturing Costs: Fixed Overhead 62,730 64,730 Total Cost of Goods Sold 243,540 252,450 Gross Profit $279,210 $245,025 1.Prepare a flexible budget based on the actual number of recliners sold. 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. 3.Have Preston's managers done a good job or a poor job controllingmaterials, labor, and overhead costs? Why? 4.Describe how Preston's managers can benefit from the standard costing system.
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