Root Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. Root 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.) Root 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 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 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 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 FOH volume variance Requirement 3. Have Root'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. Managers have done a job controlling overhead costs as evidenced by the fact that of the overhead variances are Requirement 4. Describe how Root's managers can benefit from the standard costing system. Standard costing helps managers do the following: Static Budget (975 recliners) 487,500 Actual Results (955 recliners) Sales $ (975 recliners x $ 500 each) (955 recliners x $ 475 each) 453,625 Variable Manufacturing Costs: Direct Materials 50,310 50,291 Direct Labor 91,650 (5.850 yds @ $ 8.60 / yd.) (5.987 yds @ $ 8.40 / yd.) (0.750 DLH @ $ 9.40 / DLH) (9,350 DLH @ $ 9.50 / DLH) (5.850 yds @ $ 5.30 / yd) (5.987 yds @ $ 6.70 / yd.) 88,825 Variable Overhead 31,005 40,113 Forced Manufacturing Costs: 60,255 62,256 Forced Overhead 241.484 Total Cost of Goods Sold Gross Profit 233,220 254,280 $ 212,141
