The favorable flexible budget variance of 16 has two

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Cornerstones of Cost Management
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Chapter 20 / Exercise 1
Cornerstones of Cost Management
Hansen/Mowen
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3.The favorable flexible-budget variance of $16 has two offsetting components:
7-27Materials and manufacturing labor variances.Consider the following data collectedfor Great Homes, Inc.:Direct Materi-alsDirect Manufac-turing LaborCost incurred: Actual inputs actual prices$200,000$90,000Actual inputs standard prices214,00086,000Standard inputs allowed for actual output standard prices225,00080,000Required:Compute the price, efficiency, and flexible-budget variances for direct materials and direct manufac-turing labor.SOLUTION(15 min.) Materials and manufacturing labor variances.Actual CostsIncurred(Actual Input Qty.× Actual Price)Actual Input Qty.× Budgeted PriceFlexible Budget(Budgeted InputQty. Allowed for Actual Output × Budgeted Price)DirectMaterials$200,000$214,000$225,000$14,000 F$11,000 FPrice varianceEfficiency variance7-8
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Cornerstones of Cost Management
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Chapter 20 / Exercise 1
Cornerstones of Cost Management
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$25,000 FFlexible-budget varianceDirect $90,000$86,000$80,000Mfg. Labor$4,000 U$6,000 UPrice varianceEfficiency variance$10,000 UFlexible-budget variance7-28Direct materials and direct manufacturing labor variances.Rugged Life, Inc., de-signs and manufactures fleece quarter-zip jackets. It sells its jackets to brand-name outdoor out-fitters in lots of one dozen. Rugged Life’s May 2017 static budget and actual results for direct in-puts are as follows:Static BudgetNumber of jacket lots (1 lot = 1 dozen)300Per Lot of Jackets:Direct materials18 yards at $4.65 per yard = $83.70Direct manufacturing labor2.4 hours at $12.50 per hour = $30.00Actual ResultsNumber of jacket lots sold325Total Direct Inputs:Direct materials6,500 yards at $4.85 per yard = $31,525Direct manufacturing labor715 hours at $12.60 = $9,009Rugged Life has a policy of analyzing all input variances when they add up to more than 8% of thetotal cost of materials and labor in the flexible budget, and this is true in May 2017. The productionmanager discusses the sources of the variances: “A new type of material was purchased in May.This led to faster cutting and sewing, but the workers used more material than usual as they learnedto work with it. For now, the standards are fine.”Required:1.Calculate the direct materials and direct manufacturing labor price and efficiency variancesin May 2017. What is the total flexible-budget variance for both inputs (direct materials anddirect manufacturing labor) combined? What percentage is this variance of the total cost of7-9

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