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: (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.) 980 Smith Recliners Flexible Budget Budget Amounts per Unit Actual Units (Recliners) Sales Revenue 499800|| Variable Manufacturing Costs: Direct Materials 54058.40 Direct Labor 87360 Variable Overhead 31500 Fixed Manufacturing Costs: Fixed Overhead 000 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.) 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.) = Direct materials cost variance Direct labor cost variance Formula (AC-SC) XAQ (AC-SC) x AQ = = Variance 1229F 1920 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 (AQ - SQ)X SC Direct materials efficiency variance Direct labor efficiency variance = = = = Variance 1258 | U 3640 F (AQ - SQ)X SC 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.) Variance = Formula Actual FOH - Allocated FOH (AQ - SQ)X SC 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.) Variance FOH cost variance FOH volume variance = Formula Actual FOH - Budgeted FOH Budgeted FOH - Allocated FOH = = Requirement 3. Have Smith's managers done a good job or a poor job controlling materials, labor, and overhead costs? Why? direct labor cost variance and The variances computed in Requirement 2 suggest that the managers have done a good job controlling materials and labor costs. The favorable direct materials cost variance and direct labor efficiency variance help offset the favorable direct materials efficiency variance Managers have done a good job controlling overhead costs as evidenced by the fact that all of the overhead variances are favorable Requirement 4. Describe how Smith's managers can benefit from the standard costing system Standard costing helps managers do the following: Prepare the master budget Set target levels of performance for flexible budgets Identify performance standards Decrease accounting costs Set sales prices of products and services Static Budget (1,000 recliners) $ 510,000 Actual Results (980 recliners) 470,400 52,800 52,830 Sales (1,000 recliners x $ 510 each) (980 recliners x $ 480 each) Variable Manufacturing Costs: Direct Materials (6,000 yds @ $ 8.80 / yd.) (6,143 yds @ $ 8.60 / yd.) Direct Labor (10,000 DLHr@ $ 9.10 / DLHr) (9,600 DLHr @ $ 9.30 / DLHr) Variable Overhead (6,000 yds. @ $ 5.00/yd.) (6,143 yds @ $ 6.40 / yd.) Fixed Manufacturing Costs: 91,000 89,280 30,000 39,315 Fixed Overhead 60,000 62.000 Total Cost of Goods Sold 243,425 233,800 276,200 $ 226,975 Gross Profit
