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:

Data Table

		Static Budget (1,000 recliners)	Actual Results (980 recliners)
Sales	(1,000 recliners x $515 each)	$515,000
	(980 recliners x $480 each)		$470,400
Variable Manufacturing Costs:
Direct Materials	(6,000 yds. @ $8.50/yd.) (6,143 yds. @ $8.30/yd.)	51,000	50,987
Direct Labor	(10,000 DLHr @ $11.00/ DLHr) (9,600 DLHr @ $11.10/ DLHr)	110,000	106,560
Variable Overhead	(6,000 yds. @ $5.00/yds.) (6,143 yds. @ $6.40/yd)	30,000	39,315
Fixed Manufacturing Costs:
Fixed Overhead		60,000	62,000
Total Cost of Goods Sold		251,000	258,862
Gross Profit		$264,000	$211,538

Requirement 1:

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 Smith's managers done a good job or a poor job controlling materials, labor, and overhead costs? Why?
4.	Describe how Smith's managers can benefit from the standard costing system.

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.)

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.)

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.)

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.)

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

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

.

Requirement 4:

Describe how

Smith's

managers can benefit from the standard costing system.

Standard costing helps managers do the following:

Create New Products?

Decrease Accounting Costs?

Develop more efficient production methods?

Identify performance standards?

Increase production levels?

Increase sales volume?

Prepare master budget?

Set sales prices of products and services?

Set target levels of performance for flexible budgets?