Problem 6-27 Problem 6-31 Problem 6-31 - Comprehensive flexible budgets and variance analysis Name: Instructor Course: Date: Pressure Reducers, Inc., produces and sells lumbar support cushions for office chairs using a special foam that molds to a person's back. Since all products are made to order, the only inventory the company maintains is raw materials. Thus, all costs of production are recognized in the period in which they are incurred. The following annual performance report was prepared from the company's accounting records: Actual Budget Variance Units sold 14.800 15.000 200U Sales revenue $3.034,000 $3,000,000 $34,000 F Cost of goods sold 2.064.790 2.075.000 (10.210E Gross margin 969,210 925,000 44,210 F Selling and administrative expenses 288.625 299.000 (1.375) E Operating income $680.585 $635.000 $45.585 E The following fixed costs are included in these amounts. Actual Budget Cost of goods sold $195,000 3200,000 Seling and administrative expenses 140,000 140,000 ch06 Excel Templates - assignment(1).xls Hank Martinez, Pressure Reducers' CFO, used the following standard cost card in preparing the budget and thought he had done a good job estimating production and sales. He wonders why the variable cost of goods sold deviated from that budget. Direct material Direct labor Variable overhead Standard Quantity per Unit 5 yards 2.5 hours 2.5 hours Standard Price $10 per yard $16 per DLH $14 per DLH Total Cost per Unit $50 40 35 $125 Actual variable costs incurred during the year were as follows. Direct material purchased and used (78,400 yards @ $9.80) Direct labor cost incurred (37,260 DLH @ $15.50) Variable overhead costs incurred $768,320 577.530 523.949 $1,869.790 Directions: A Prenar a nerformance renart that isnates Pressure Reducers' flexible hunt and sales me variances ch06 Excel Templates - assignment(1).xls D LVM Directions: a. Prepare a performance report that isolates Pressure Reducers' flexible budget and sales volume variances Flexible Budget Variance Sales Volume Variance Flexible Budget Actual Results 14,800 3,034,000 Static Budget 15,000 3,000,000 Unit sales Sales revenue Less variable expenses Cost of goods sold Selling & administrative Contribution margin Less fixed expenses Cost of goods sold Selling & administrative Total fixed expenses Operating profit 1.869.790 148,6251 2,018,415 1,015,585 1,875,000 150.000 2,025,000 975.000 IIIIIIIIII 195,000 140,000 335,000 680,585 200,000 140,000 340,000 635,000 ch06 Excel Templates - assignment(1).xls D b. Calculate the direct materials price and quantity variances. Solve: AQ X AP AQ x SP SOX SP Direct material price variance Direct material quantity variance AQ X SP SQ X SP Direct material flexible budget variance Calculate the direct labor rate and efficiency variances. Solve: AQ X AP Direct labor rate variance Direct labor efficiency variance Direct material flexible budget variance ch06 Excel Templates - assignment(1).xls D d. Calculate the variable overhead spending and efficiency variances Solve: AQ X AP AQ x SP SOX SP Variable OH spending variance Variable OH efficiency variance Variable overhead flexible budget variance 10. Show that the direct materials, direct labor, and variable overhead variances equals the flexible budget variance for variable cost of goods sold in part (a). LIITTI Solve: Direct materials variance Direct labor variance Variable overhead varianco Total III ch06 Excel Templates - assignment(1).xls Variable overhead flexible budget vanance Show that the direct materials, direct labor, and variable overhead variances equals the flexible budget variance for variable cost of goods sold in part (a). Solve: Direct materials variance Direct labor variance Variable overhead variance Total INITI Prepare a memo to Hank Martinez explaining why the actual variable cost of goods sold differed from the budgeted amount Answer: TO: Hank Martinez FROM: John Student DATE: January 15, 20XX RE: Cost of goods sold variance analysis