Question

Medo Company manufactures bags; it is a small business that Medo developed while in college. He began making bags for his neighbors. As demand grew, he opened his first store; the bags made by medo was very popular, and his business grew and expanded. As customers' demands increased, Medo hired some workers and began to manage the operation.

As a new junior accountant at Medo Company. Your boss, the Controller, has given you the latest information for the operation. The information provided includes data related to standard costs, and actual results for the current accounting period:

The company plans to produce 24,000 bags and sell for 240 SR each. The costing system applied in the company has two direct-cost categories: direct materials and direct manufacturing labor. and two overhead-cost categories (variable manufacturing overhead and fixed manufacturing overhead, both allocated using direct manufacturing labor-hours).

The company has budgeted direct manufacturing labor-hour level is 19,200; at a budgeted cost of 768,000 SR; each bag requires 2 meters of direct materials, at the budgeted price of 60 SR per meter.

Budgeted variable manufacturing overhead is 480,000 SR, and budgeted fixed manufacturing overhead is 1,152,000 SR.

At the end of the year, Medo Co. produced 20,000 bags and sell for 250 SR each, using 32,500 meters at a cost of 56 SR per meter, incurring total direct labor cost $630,000 SR; 45 SR per hour. Manufacturing overhead (MOH) costs incurred for the year amounted to 261,000 for variable overhead costs, and 1,100,000 SR for fixed overhead costs.

the Controller has requested you to Prepare a performance report that uses a flexible budget and a static budget to compute:

1. The 4-variance analysis (All variable manufacturing overhead and fixed manufacturing

overhead variances)

2. Discuss possible causes of the variances in the report.

Answer 1