Part 1 Cost variance analysis
Gourmet, Inc. produces containers of frozen food. During October the company had the following
actual production and costs.
Actual
Containers produced in October 725
Variable
Overhead $5,500
Fixed
Overhead $14,000
Direct
Labor cost $75,600
Which is 4,000 Direct labor hours
Actual
material purchased $33,000
Which is 15,000 pounds
Actual
Material pounds used 14,900 pounds
Overhead is budgeted and applied using direct-labor
hours. Standard cost and annual budget
information are as follows:
Standard
cost per container
Direct
Labor 5 hours at $18 $90
Direct
Material 20 poundsat $2 $40
Variable
overhead 5 Direct labor hours at $1.50
$7.50
Fixed
Overhead 5 Direct labor hours at $3
$15
Total $152.50
Budgeted
Monthly Fixed Overhead $12,500
Required: Make sure
you do not forget to label the variances U or F. You need to show your work either by cell
reference or showing your calculation to the side.
1. Calculate the direct materials price and quantity
variance.
Materials price variance
Materials Quantity variance
2. Calculate the
direct labor rate and efficiency variances.
Labor rate variance
Labor Efficiency variance
3. Calculate the
variable overhead spending and efficiency variances.
Variable overhead spending variance
Variable overhead efficiency variance
4. Calculate the
fixed overhead budget variance.
Fixed overhead budget variance
5. Pick out the two
variances that you computed above that you think should be further
investigated. Explain why you picked
these 2 variances and what might be the possible cause of the variances.
Problem
2 Performance reporting
Crafts Inc., is a manufacturer of furniture.
The company has 2 responsibility centers: Production and Selling and Distribution.
Production and administration are cost centers while Selling
and Distribution is a profit center.
Presented below are the budgeted and actual contribution
income statement for October along with applicable unit information.
Budgeted unit information:
Units 900
Sale price per unit $250
Direct material per unit$50
Direct labor per unit $20
Variable manufacturing overhead per unit $15
Variable selling and distribution per unit 60
Actual Units:
1,000
Craft
Inc.
Budgeted
Contribution Income Statement
For
Month of October
Sales $2,25,000
Less Variable costs
Variable cost of goods sold:
Direct
materials $45,000
Direct
labor 18,000
Manufacturing
overhead 13,500 $76,500
Selling and distribution 54,000 (1,30,500)
Contribution Margin
94,500
Less Fixed Costs:
Manufacturing
overhead
40,000
Selling
and Distribution 30,000 (70,000)
Net Income
24,500
Craft
Inc.
Actual
Contribution Income Statement
For
Month of October
Sales $2,75,000
Less Variable costs
Variable cost of goods sold:
Direct
materials $50,000
Direct
labor 25,000
Manufacturing
overhead 20,000 $95,000
Selling and distribution 88,000 (1,83,000)
Contribution Margin
92,000
Less Fixed Costs:
Manufacturing
overhead
38,000
Selling
and Distribution 40,000 (78,000)
Net Income(Loss)
14,000
Required:
1. Prepare a flexible
budget performance report for Production that compares actual and allowed
costs.
2. Prepare a flexible
budget performance report for selling and distribution that compares actual and
allowed costs.
3. Determine the
revenue variance.
4. Determine the
sales price variance.
5. Determine the
sales volume variance.
6. Explain to
management the areas that should be investigated. You should also include why the actual income
is less than budgeted Explain why you picked these areas to look at.
1. Prepare a flexible
budget performance report for Production that compares actual and allowed
costs.
Production
Department
Flexible
Budget Performance Report
For
Month of October
Actual
costs Flexible Budget Cost Flexible Budget Variances Designation U or F
2. Prepare a flexible
budget performance report for selling and distribution that compares actual and
allowed costs.
Selling
and Distribution Cost Center
Flexible
Budget Performance Report
For
Month of October
Actual
costs Flexible Budget Cost Flexible Budget Variances Designation U or F
3. Determine the
revenue variance.
4. Determine the
sales price variance.
5. Determine the
sales volume variance.
6. Explain to
management the areas that should be investigated. You should also include why the actual income
is less than budgeted Explain why you picked these areas to look at.
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