Question

Dan LLC makes and sells plastic fish ponds for the landscaping industry. The company expected to produce and sell 14,000 ponds during 2014. Due to production problems, only 11,000 ponds were actually produced and sold during 2014. The following information is made available:

Production data for 2014	Standard	Actual
	$	$
Selling price per unit (i.e. per pond)	95	110
Direct material cost per unit	60	80
Direct labor cost per unit	25	15
Fixed costs:
Fixed manufacturing overhead	50,000	70,000

Required:

1. Using the template below, prepare pro-forma income statements for the static budget, flexible budget and actual results for year ended December 31, 2014. Use your results to compute the flexible budget variances, indicating whether each variance is favorable or unfavorable.  

Pond LLC Income Statements for year to 12/31/2014	Static budget	Flexible budget	Actual results	Flexible budget variances	Favorable or unfavorable F or UF
Units (ponds)	14,000 units	?	?
	$	$	$	$
Sales	?	?	?	?	?
Variable costs
Direct materials	?	?	?	?	?
Direct labor	?	?	?	?	?
Contribution margin	?	?	?	?	?
Fixed costs	?	?	?	?	?
Fixed manufacturing overhead
Net Income/loss	?	?	?	?	?

2. Pond’s accountant asks you to prepare the flexible budget variances for direct material. You are provided with the following standard and actual data for plastic, the company’s only direct material:

Pricing and usage data for plastic during 2014	Standard	Actual
Purchase price for each pound of plastic	$6 per pound	$4 per pound
Quantity of plastic needed per pond	10 pounds	20 pounds
Actual units/ponds produced during 2014		11,000 ponds

Prepare the following flexible budget variances for material, clearly indicating whether each variance is favorable or unfavorable:

1. Material price variance

2. Material usage variance

3. The total flexible budget cost variance for material (i.e. the total material cost variance)

Answer 1