Question
In: Accounting
McKnight Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. McKnight allocates...
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:
|
Static Budget |
Actual Results |
|||||||
|
(1,000 recliners) |
(980 recliners) |
|||||||
|
Sales |
(1,000 recliners x |
$500 |
each) |
$500,000 |
||||
|
(980 recliners x |
$475 |
each) |
$465,500 |
|||||
|
Variable Manufacturing Costs: |
||||||||
|
Direct Materials |
(6,000 yds. @ |
$8.50 |
/ yd.) |
51,000 |
||||
|
(6,143 yds. @ |
$8.30 |
/ yd.) |
50,987 |
|||||
|
Direct Labor |
(10,000 DLHr @ |
$9.30 |
/ DLHr) |
93,000 |
||||
|
(9,600 DLHr @ |
$9.40 |
/ DLHr) |
90,240 |
|||||
|
Variable Overhead |
(6,000 yds. @ |
$5.20 |
/ yd.) |
31,200 |
||||
|
(6,143 yds. @ |
$6.60 |
/ yd.) |
40,544 |
|||||
|
Fixed Manufacturing Costs: |
||||||||
|
Fixed Overhead |
60,600 |
62,600 |
||||||
|
Total Cost of Goods Sold |
235,800 |
244,371 |
||||||
|
Gross Profit |
$264,200 |
$221,129 |
||||||
|
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. |
Solutions
Expert Solution
| 1. Flexible Budget For 980 Recliner | |||||||||
| Static Budget (1000 recliner | Flexible Budget (980 Recliner) | Actual Results (980 Recliner) | |||||||
| Quantity | Per Unit | Total | Quantity | Per Unit | Total | Quantity | Per Unit | Total | |
| Sales | 1,000 recliners | $500 | $500,000 | 980 Recliner | $500 | $490,000 | (980 recliners | $475 | $465,500 |
| Variable Manufacturing Costs: | |||||||||
| Direct Materials | 6,000 yds. | $8.50 | 51,000 | 5880 Recliner | $8.50 | $49,980.00 | (6,143 yds. | $8.30 | 50,987 |
| Direct Labor | 10,000 DLHr | $9.30 | 93,000 | 9800 DLH | $9.30 | $91,140.00 | (9,600 DLHr | $9.40 | 90,240 |
| Variable Overhead | 6,000 yds. | $5.20 | 31,200 | 5880 Yds. | $5.20 | $30,576.00 | (6,143 yds. | $6.60 | 40,544 |
| Fixed Manufacturing Costs: | |||||||||
| Fixed Overhead | 60,600 | 60,600 | 62,600 | ||||||
| Total Cost of Goods Sold | 235,800 | $232,296 | 244,371 | ||||||
| Gross Profit | $264,200 | $257,704 | $221,129 | ||||||
| Part-2 | |||||||||
| Computation of Direct Material Price & Quantity Variance | |||||||||
| Direct Material Price variance | (SP-AP)AQ | (8.50-8.30)*6143 | $1,229 | Favourable | |||||
| Direc Material Quantity Variance | (SQ-AQ)SP | (5880-6143)*8.50 | ($2,236) | Unfavourable | |||||
| Computation of Direct Labour Rate & Efficiency Variance | |||||||||
| Direct Labour Rate variance | (SR-AR)*AH | (9.30-9.40)*9600 | ($9,600) | Unfavourable | |||||
| Direct Labour Efficiency Variance | (SH-AH)SR | (9800-9600)*9.30 | $1,860 | Favourable | |||||
| Computation of variable Overhead Rate & Efficiency & Spending Variance | |||||||||
| Direct Variable Overhead Rate Variance | ( SP-AP)*AH | (5.20-6.60)*6143 | ($8,600) | Un Favourable | |||||
| Direct Variable Overhead Efficiency Variance | (SH-AH)SP | (5880-6143)*5.20 | ($1,368) | Un Favourable | |||||
| Direct Variable Overhead Spending Variance | Price variance+ Quantity Variance | ($9,968) | Un Favourable | ||||||
| Computation of Fixed Overhead Rate & Volume & Spending Variance | |||||||||
| Direct Fixed Overhead Rate Variance | Budgeted OH- Actual OH | 264200-221129 | $43,071 | Favourable | |||||
| Direct Fixed Overhead Volume Variance | Standard Rate applied on standard Hour for actual Qty- Budgeted OH | 257704-264200 | ($6,496) | Un Favourable | |||||
| Direct Fixed Overhead Spending Variance | Price variance+ Quantity Variance | $36,575 | Favourable | ||||||
| Part-3 | |||||||||
| a. purchase Manager Done a good Job but Production manager not used material effectively | |||||||||
| b. Manager hire labour at higher price but utilise the labour effectively. | |||||||||
| b. manager has not performed good job to utilise variable overhead at economical price and also not utilise effectively. | |||||||||
| C. Overall saving in Fixed Overhed Cost has been made by manager but not use effectively | |||||||||
| Part-4 | |||||||||
| a. Through Standard costing Statement manager can review their performance and accordingly put more effort to improve it. | |||||||||
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