Static Budget Actual Results (1,025 recliners) (1,005 recliners) $ 512,500 $ 497,475 52,275 52,290 104,550 Sales (1,025 recliners x $500 each) (1,005 recliners x $495 each) Variable Manufacturing Costs: Direct Materials (6,150 yds @ $8.50 / yd.) (6,300 yds. @ $8.30 / yd.) Direct Labor (10,250 DLHr @ $10.20 / DLHr) (9,850 DLHr @ $10.40 / DLHR) Variable Overhead (6,150 yds @ $5.10/yd.) (6,300 yds @ $6.50 / yd.) Fixed Manufacturing Costs: Fixed Overhead Total Cost of Goods Sold Gross Profit 102,440 31,365 40,950 62,730 64,730 260,410 250,920 261,580 $ $ 237,065 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 McKnight's managers done a good job or a poor job controlling materials, labor, and overhead costs? Why? 4. Describe how McKnight's managers can benefit from the standard costing system. Requirement 1. Prepare a flexible budget based on the actual number of recliners sold. (Round budget amounts per unit to the nearest cent.) McKnight Recliners Flexible Budget Budget Amounts per Unit Actual Units (Recliners) 1005 Sales Revenue 500 502500 51 51225 102 102510 30.6 30753 Variable Manufacturing Costs: Direct Materials Direct Labor Variable Overhead Fixed Manufacturing Costs: Fixed Overhead Total Cost of Goods Sold Gross Profit 62730 247218 255282 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 (AC - SC) AQ (AQ - SQ) - SC 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.) Variance Direct materials efficiency variance Direct labor efficiency variance Formula (AC-SC) AQ = |(AC-SC) SQ 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 VOH cost variance Formula (AC-SC) AQ (AQ - SQ) SC 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 McKnight Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. McKnight allocates overhead based on yards of direct materials. The company's performance report includes the following selected data: VOH cost variance (AC-SC) *AQ VOH efficiency variance (AQ - SQ) - SC 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 Actual FOH - Budgeted FOH U FOH volume variance = Budgeted FOH - Allocated FOH F = - Requirement 3. Have McKnight'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 job controlling materials and labor costs. The favorable direct materials cost variance and direct labor efficiency variance help offset the unfavorable direct labor cost variance and direct materials efficiency variance. Managers have done a good job controlling overhead costs as evidenced by the fact that some of the overhead variances are unfavorable Requirement 4. Describe how McKnight's managers can benefit from the standard costing system. Standard costing helps managers do the following: Igeting and Create new products Decrease accounting costs Develop more efficient production methods required fo Q = standa Identify performance standards Increase production levels Increase sales volume Prepare the master budget Set sales prices of products and services Set target levels of performance for flexible budgets ob controlli ave done a controlling e standard