The standard for budget design Direct material standard input 10 pounds X standa

Question

The standard for budget design Direct material standard input 10 pounds X standard price $.50 per pound $5.00/unit Direct labor standard input 1 > hour X standard price $12 per hour $6.0()/unil The relevant range of the company is 9,500 to 13.500 units. If sales are lower than 9,500 units, manufacturing fixed costs decrease $5,000 and Selling Administrative fixed cost decrease $6,000. II sales are higher than 13,500 units, manufacturing fixed costs increase $7,000 and Selling Administrative Fixed cost increase $8,000. Prepare a Flexible Budget Variance Analysis Prepare a Sales Activity Variance Analysis Calculate Direct Material price and quantity variance Calculate Direct Labor price and quantity variance

Explanation / Answer

1) Flexible Budget - 10000 units Sales ( 10000 * 20.50) 205000 Less Variable cost Direct Material ( 10000 * 10 *0.5) 50000 Direct labor ( 10000 * 0.5 * 12) 60000 Selling cost ( 10000 *0.75) 7500 Administrative costs ( 10000 * 0.30) 3000 Total variable cost 120500 Contribution 84500 Less: Fixed Cost Manufacturing 38000 Selling & administrative 42000 Net Income 4500 Variance Analysis Budget Actual Variance Sales 205000 210000 5000 Less Variable cost Direct Material ( 10000 * 10 *0.5) 50000 49490 -510 Direct labor ( 10000 * 0.5 * 12) 60000 61965 1965 Selling cost ( 10000 *0.75) 7500 7500 0 Administrative costs ( 10000 * 0.30) 3000 3000 0 Total variable cost 120500 121955 1455 Contribution 84500 88045 3545 Less: Fixed Cost Manufacturing 38000 38000 0 Selling & administrative 42000 42000 0 Net Income 4500 8045 3545 2) Sales activity variance analysis Budget Actual Varoance Sales 205000 210000 5000 Number of units sold 10000 10000 0 Selling price per unit 20.5 21 0.5 3) Direct material price variance = ( Actual price - standard price) * Actual quantity = ( 0.49 -.50) * 101000                                                              = 0.01 * 101000 = 10100 Favourable Direct material quantity variance = ( standard quantity - actual quantity) * standard price = ( 100000 - 101000) * 0.50 = 1000 * 0.50 = 500 unfavourable 4) Direct labor rate variance = ( Actual rate - standard rate) * Actual hours                                                     = ( 12.15 - 12) * 5100                                                     = 0.15 * 5100                                                     = 765 unfavourable Direct labor quantity variance = ( standard quantity - actual quantity) * standard rate = ( 5000 - 5100) * 12 = 100 * 12 = 1200 unfavourable

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