Question $19$ of $19$ 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

job controlling materials and labor costs. The

direct materials cost variance and direct

labor efficiency variance help offset the

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

job controlling overhead costs as evidenced

by the fact that

of the overhead variances are Requirement $2.$ Compute the cost variance and the efficiency varia

overhead efficiency, fixed overhead cost, and fixed overhead volum Uir

This test: $125$ point$($s$)$ possible

This question: $15$ point$($s$)$ possible

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Question $18$

Question $19$

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Part $1$

Smith Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. Smith allocates overhead based on yards of direct materials. The$$ company's performance report includes the following selected$$ data:

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Part $1$

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$\text{'}$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$\text{'}$s managers can benefit from the standard costing system s