Vaughan Company had a fantastic sales 3rd Quarter! Management had wanted to wait until quarter end to d a post mortem of the annual results and do some investigations if necessary. Here is what actually happened: Total sales were $2,368,000 for 40,000 units. Management failed to be able to buy enough direct materials to produce the required units for ending inventory nor to keep the required direct materials on hand for ending inventory requirements due to a shortage of WHAM during the quarter. Total Production for 3rd quarter was 40,000 units. Vaughan uses LIFO inventory method. Regarding WHAM, Vaughan purchased and used 120,300 pounds at a total cost of $222,555. Vaughan used 30,000 DLH (direct labor hours) to make the 40,000 units at a total labor cost of $470,000. Actual Variable FOH was $47,000 and actual Fixed FOH was $19,700. Even though Production ended up being 40,000 units, the cash borrowings indicated by the static budget dictated that Vaughan borrow money ($6,000) on the last day of July and they did so. They also paid it back at the end of the August as budgeted. Selling and Administrative expenses totaled $718,000. $322,000 was variable and the rest was fixed. We have not covered S&A variances, but never the less, the difference between what actually occurred and what should have happened (the flexible budget) can still be illuminating. In this Google Sheet: (a) Prepare a standard cost card for a widget. (b) Prepare an flexible budget performance report comparing actual production/ sales to a flexible budget of such sales/ costs (Like #2 on the top of page 842 in our text) (c) Prepare the direct material variances (price and efficiency / quantity) for each material d) Prepare the direct labor variances (price/ rate and efficiency) (e) Prepare the Variable (spending & efficiency) and Fixed FOH (budget/ spending & volume) variances. (refer to the appendix for the factory overhead variances) (f) What should management be looking into for further investigation? (g) Do you think they should have waited until the end of the quarter to analyze the differences between actual results and planned results? Why or why not? (h) Is FOH over or underapplied? And by how much? Draw a T-account and show FOH. Does your answer match with the answers you calculated for Variable and Fixed FOH variances?Flexible Budget and Standard Cost Project Standard Cost Card Quantity Cost Total Direct Material WHAM 3.0075 1.85 5.56 Direct Labor 1.333333333 15.66666667 20.89 Factory Overhead 1.333333333 1.566666667 2.0 Total Cost 28.54 Actual Flexible Flexible Production Budget Budget and Sales Variance Units 15,000 15,000 Sales $ 888,000 $ 900,000 Variable Costs: Direct Materials WHAM $ 83,458 $ 81,000 2,458 Direct Labor $ 313,333 $ 156,000 Variable FOH 31,333 22,500 3.833 Variable S&A $ 120,750 $ 120,000 S 750 Interest Expense 6,000 5,000 Contribution Margin 333,125 $ 514,500 (181,375) Fixed Costs - FOH 6,567 $ 7,450 1885] Fixed Costs - S&A $ 148,500 $ 131,000 17,500 Operating Income 178,059 S 376,050 (197,991) C. Direct Material WHAM Price Quantity / Efficiency Totals Price Efficiency Total Direct Labor Price/Rate Efficiency Totals Price Efficiency Variable FOH Spending Efficiency Totals Spending Efficiency Total Fixed FOH Budget/Spending Volumef. What should management be looking into for further investigation? g. Do you think they should have waited until the end of the year to analyze the differences between actual results and planned results? Why or why not? h. Is FOH over or underapplied? And by how much? Draw a T-account and show FOH. Does your answer match with the answers you calculated for Variable and Fixed FOH variances? FOH VFOH Spending VFOH Efficiency FFOH Spending FFOH Volume Inserted for reference: Master Budget Sales Budget Vaughan Company Sales Budget Total 3rd Quarter July August September 3rd Quarter Sales in Units 4,000 18,000 15,000 37,000 Selling Price per Unit X 60 X 60 X 60 X 60 Total Sales in $ 240,000 1,080,000 900,000 2,220,000 Vaughan Company RM Budget Total 3rd Quarter July August September 3rd Quarter Required Production 7,500 17,250 12,500 37,250 RM per Unit X3 X 3 X3 X 3 Production Needs 22,500 51,750 37,500 111,750 Add: Desired End Inventory 5,175 3,750 1,575 1,575 Total Needs 27,675 55,500 39,075 113,325 Less: Beginning Inventory (2,250 5,175) (3,750) 2,250 RM to be Purchased 25,425 50,325 35,325 111,075 Cost of RM per pound X $1.80 X $1.80 X $1.80 X $1.80 Cost of RM to be Purchased 45,765 90,585 63,585 199,935Vaughan Company DL Budget Total 3rd Quarter July August September 3rd Quarter Budgeted Production in Units 7,500 17,250 12,500 37,250 DLH per Unit X 0.8 X 0.8 X 0.8 X 0.8 Total DLH needed 6,000 13,800 10,000 29,800 Cost per DLH X 13 X 13 X 13 X 13 Total Direct Labor Cost 78,000 179,400 130,000 387,400 Vaughan Company FOH Budget Total 3rd Quarter July August September 3rd Quarter Budgeted DLH 6,000 13,800 10,000 29,800 Variable FOH rate X $1.50 X $1.50 X $1.50 X $1.50 Total Variable FOH 9,000 20,700 15,000 44,700 Fixed FOH 7,450 7,450 7,450 22,350 Total FOH 16,450 28,150 22,450 67,050 Less: Depreciation (6,000) 6,000) 6,000) (18,000) Cash Needed for FOH 10,450 22,150 16,450 49,050 Total FOH per Budget $ 67,050 Budgeted DLH this period 29,800 Predetermined FOH per DLH $ 2.25 Vaughan Company S&A Budget Total 3rd Quarter July August September 3rd Quarter Budgeted Sales in units 4,000 18,000 15,000 37,000 Variable S&A Expenses X $8.00 X $8.00 X $8.00 X $8.00 Budgeted Variable S&A Exp. 32,000 144,000 120,000 296,000 Budgeted Fixed S&A 131,000 131,000 131,000 393,000 Total Selling & Admin. 163,000 275,000 251,000 689,000 Less: Depreciation (3,000) (3,000) (3,000) 9,000) Less: Bad Debt Expense (12,000) (54,000) (45,000) 111,000) Budgeted Cash S&A Expenses 148,000 218,000 203,000 569,000 Cash BudgetVaughan Company Cash Budget 3rd Quarter July August September Beginning Cash Balance 50,000 50,265 284,013 Add: Cash Receipts 270,000 732,000 918,000 Total Cash Available 320,000 782,265 1,202,013 Less: Disbursements Direct Materials WHAM 39,285 72,657 74,385 Direct Labor 78,000 179,400 130,000 FOH 10,450 22,150 16,450 S&A Expenses 148,000 218,000 203,000 Total Disbursements 275,735 492,207 123,835 Cash Balance (Deficit) 44,265 290,058 778,178 Borrowings 6,000 RePayments 6,000 Interest 45 Ending Cash Balance 50,265 284,013 778,178 Vaughan Company Budgeted Income Statement Total 3rd Quarter July August September 3rd Quarter Sales 240,000 1,080,000 900,000 2,220,000 Less: CGS 70,400) (316,800) 264,000) (651,200) Gross Margin 169,600 763,200 636,000 1,568,800 Less: S&A Expenses (163,000) 275,000) 251,000) 689,000) Net Operating Income 6,600 488,200 385,000 879,800 Less: Interest Expense (45) 45) Net Income 6,600 488,155 385,000 879,755