Nashler Company has the following budget prepared for 150,000 units of activity:
ID: 2728762 • Letter: N
Question
Nashler Company has the following budget prepared for 150,000 units of activity:
Direct materials
1,080,000
Direct labor
231,000
Variable overhead:
Supplies
34,500
Maintenance
28,500
Power
27,000
Total variable costs
1,401,000
Fixed overhead:
Supervision
98,000
Depreciation
76,000
Other overhead
245,000
Total fixed costs
419,000
Total costs
1,820,000
Their actual activity was 160,000 units and the following costs: direct materials 1,070,000, direct labor 240,000, supplies 32,500, maintenance 40,000, power 28,000, supervision 100,000, depreciation 98,000, other overhead 250,000.
Required: prepare a flexible budget for activity of 160,000 units and a variance analysis for the actual activity level. Explain possible reasons for each of the variances.Explain why there could be variances in a flexible budget for fixed costs.
Direct materials
1,080,000
Direct labor
231,000
Variable overhead:
Supplies
34,500
Maintenance
28,500
Power
27,000
Total variable costs
1,401,000
Fixed overhead:
Supervision
98,000
Depreciation
76,000
Other overhead
245,000
Total fixed costs
419,000
Total costs
1,820,000
Explanation / Answer
Nashler Company
Flexible Budget
Static Budget
Flexible Budget
Activity level (Units)
150,000
160,000
Direct materials
$ 1,080,000
$ 1,152,000
Direct labor
$ 231,000
$ 246,400
Variable overhead:
Supplies
$ 34,500
$ 36,800
Maintenance
$ 28,500
$ 30,400
Power
$ 27,000
$ 28,800
Total variable costs
$ 1,401,000
$ 1,494,400
Fixed overhead:
Supervision
$ 98,000
$ 98,000
Depreciation
$ 76,000
$ 76,000
Other overhead
$ 245,000
$ 245,000
Total fixed costs
$ 419,000
$ 419,000
Total costs
$ 1,820,000
$ 1,913,400
Nashler Company
Variance Analysis
Flexible Budget
Actual costs
Variance
Favorable/Unfavorable
Activity level (Units)
160,000
160,000
Direct materials
$ 1,152,000
$ 1,070,000
$ 82,000
F
Direct labor
$ 246,400
$ 240,000
$ 6,400
F
Variable overhead:
Supplies
$ 36,800
$ 32,500
$ 4,300
F
Maintenance
$ 30,400
$ 40,000
$ 9,600
U
Power
$ 28,800
$ 28,000
$ 800
F
Total variable costs
$ 1,494,400
$ 1,410,500
$ 83,900
F
Fixed overhead:
Supervision
$ 98,000
$ 100,000
$ 2,000
U
Depreciation
$ 76,000
$ 98,000
$ 22,000
U
Other overhead
$ 245,000
$ 250,000
$ 5,000
U
Total fixed costs
$ 419,000
$ 448,000
$ 29,000
U
Total costs
$ 1,913,400
$ 1,858,500
$ 54,900
F
Nashler Company
Flexible Budget
Static Budget
Flexible Budget
Activity level (Units)
150,000
160,000
Direct materials
$ 1,080,000
$ 1,152,000
Direct labor
$ 231,000
$ 246,400
Variable overhead:
Supplies
$ 34,500
$ 36,800
Maintenance
$ 28,500
$ 30,400
Power
$ 27,000
$ 28,800
Total variable costs
$ 1,401,000
$ 1,494,400
Fixed overhead:
Supervision
$ 98,000
$ 98,000
Depreciation
$ 76,000
$ 76,000
Other overhead
$ 245,000
$ 245,000
Total fixed costs
$ 419,000
$ 419,000
Total costs
$ 1,820,000
$ 1,913,400
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