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Category > Management Posted 29 Jan 2018 My Price 9.00

Pressure Reducers, Inc.

Pressure Reducers, Inc. produces and sells lumbar support cushions for office chairs using a special foam that molds to a person's back. Since all products are made to order, the only inventory the company maintains is raw materials. Thus, all costs of production are recognized in the period in which they are incurred. The following annual performance report was prepared from the company's accounting records:

 

Actual

Budget

Variance
Units sold

14,500

15,000

(500 U)
Sales revenue $2,972,500 $3,000,000 ($27,500 U)
Cost of goods sold

2,051,000

2,075,000

(24,000 F)
Gross margin 921,500 925,000 (3,500 U)
Selling and administrative expenses

288,625

290,000

(1,375 F)
Operating income

$?632,875

$?635,000

($?2,125 U)

The following fixed costs are included in these amounts.

 

Actual

Budget
Cost of goods sold $195,000 $200,000
Selling and administrative expenses ?140,000 ?140,000

Hank Martinez, Pressure Reducers' CFO, used the following standard cost card in preparing the budget and thought he had done a good job estimating production and sales. He wonders why the variable cost of goods sold deviated from that budget.

 

Standard Quantity per Unit

Standard Price

Total Cost per Unit
Direct material 10 yards $5 per yard $?50
Direct labor ?5 hours $8 per DLH ??40
Variable overhead ?5 hours $7 per DLH

??35
     

$125

Actual variable costs incurred during the year were as follows.

Direct materials purchased and used (133,400 yards @ $5.25) $??700,350
Direct labor cost incurred (79,750 DLH @ $7.80) 622,050
Variable overhead costs incurred

533,600
 

$1,856,000

Required

(a)  

Prepare a performance report that isolates Pressure Reducers' flexible budget and sales volume variances.
(b)  

Calculate the direct materials price and quantity variances.
(c)  

Calculate the direct labor rate and efficiency variances.
(d)  

Calculate the variable overhead spending and efficiency variances.
(e)  

Show that the sum of direct materials, direct labor, and variable overhead variances equals the flexible budget variance for variable cost of goods sold in part (a).
(f)  

Prepare a memo to Hank Martinez explaining why the actual variable cost of goods sold differed from the budgeted amount.

 

Answers

Maurice Tutor
(5)
Status NEW Posted 29 Jan 2018 11:01 PM My Price 9.00

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