The cost accountant for Sherman’s Co. prepared the following monthly performance

Question

The cost accountant for Sherman’s Co. prepared the following monthly performance report relating to the Production Department.

                                                                                                                Budgeted                   Actual   

                                                                                                              Production             Production

                                                                                                   (10,000 Units)       (11,000 Units)

         Direct materials used......................................................         $240,000              $260,000

         Direct labor   ................................................................         $100,000              $101,000

         Variable manufacturing overhead....................................          $60,000                $65,000

         Fixed manufacturing overhead........................................         $160,000              $164,000

1.                   Refer to the above data. Compute the amounts that should be included for each of the following in a flexible budget prepared at an 11,000-unit level of production:

a         Direct materials: $____________

a         Direct labor: $____________

b        Fixed manufacturing overhead: $____________

1.                   Refer to the above data. Assume that a revised performance report is prepared for the 11,000unit level of production using a flexible budget approach. Compute the cost variances for each of the following. Indicate whether each variance is favorable (F) or unfavorable (U).

a         Direct materials variance from flexible budget: $____________

b        Direct labor variance from flexible budget: $____________

c         Total manufacturing overhead variance from flexible budget: $____________

Explanation / Answer

Budgeted production 10000 units

Actual production 11000 units production

Direct material used

240000

260000

Direct labor

100000

101000

variable manufacturing oveheads

60000

65000

Fixed manufacturing overheads

160000

164000

standard budgeted rate = cost/no of budgeted units

Direct material used

24

Direct labor

10

variable manufacturing oveheads

6

Fixed manufacturing overheads

flexible budget prepared at an 11,000-unit level of production

1-

Direct material

11000*24

264000

b

Direct labor

11000*10

110000

c-

Fixed manufacturing overheads

160000

Flexible Budget

actual

variance

favorable/unfavorable

Direct material used

264000

260000

4000

Favorable

Direct labor

110000

101000

9000

Favorable

total manufacturing overheads

226000

229000

-3000

Unfavorable

(11000*6)+160000

226000

Budgeted production 10000 units

Actual production 11000 units production

Direct material used

240000

260000

Direct labor

100000

101000

variable manufacturing oveheads

60000

65000

Fixed manufacturing overheads

160000

164000

standard budgeted rate = cost/no of budgeted units

Direct material used

24

Direct labor

10

variable manufacturing oveheads

6

Fixed manufacturing overheads

flexible budget prepared at an 11,000-unit level of production

1-

Direct material

11000*24

264000

b

Direct labor

11000*10

110000

c-

Fixed manufacturing overheads

160000

Flexible Budget

actual

variance

favorable/unfavorable

Direct material used

264000

260000

4000

Favorable

Direct labor

110000

101000

9000

Favorable

total manufacturing overheads

226000

229000

-3000

Unfavorable

(11000*6)+160000

226000

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