chapter 7 enhanced

8/13/2019 Chapter 7 Enhanced

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Flexible Budgets/Variances

I

Chapter Seven


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Static Budget Example

Webb Co. manufactures and sells jackets.

Budgeted variable costs per jacket are as follows:

Direct materials cost $ 60

Direct manufacturing labor 16Variable manufacturing overhead 12

Total variable costs $ 88


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Budgeted selling price is $120 per jacket.

Fixed manufacturing costs are expectedto be $276,000 per month within a relevant range

between 0 and 12,000 jackets.

Variable and fixed period costs (S&A) are ignored.

The static budget for April, 2008 is based

on selling 12,000 jackets.

There are no beginning and ending inventories

(Direct Material, WIP, Finished Goods).


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Webb Co. produced and sold10,000 jackets in April, 2008 at $125 eachwith actual variable costs of $95.01per jacket and fixed manufacturing

costs of $285,000.


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Static Budget Based Variance Analysis


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Flexible Budget Based Variance Analysis


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Standards

Webbs standard/budgeted cost for each

variable direct cost item is computed

as follows:

Standard inputallowed for

one output unit

Standard cost

per input unit


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Material Standards

2.00 square yards allowed per output unit (jacket)

at $30.00 standard cost per square yard.Standard cost per output unit (jacket)

2.00 $30.00 = $60.00


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Labor Standards

0.80 manufacturing labor-hours of input

allowed per output unit (jacket) at $20.00 standardcost per labor hour.

Standard cost per output unit (jacket)

0.80 $20.00 = $16.00


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Actual Data

Direct materials purchased and used:

22,200 square yards at $28.00

Labor hours: 9,000 at $22.00

Cost of direct materials = $621,600

Cost of direct manufacturing labor = $198,000


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Direct Material and Direct Labor Variance Analysis


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Variance Summary


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14/19

Market-Share and Market-Size Variances


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Journal Entries

1a.Direct Materials Control

(22,200 square yards X $30 per square) 666,000

Direct Materials Price Variance

(22,200 square yards X $2 per square yard) 44,400

Accounts Payable Control


To record direct materials purchased.


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Journal Entries (cont.)

1b. Work-in-Process Control

(10,000 jackets X 2 yards per jacket X $30 per square yard) 600,000

Direct Materials Efficiency Variance


Direct Materials Control


To record direct materials used.


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2. Work-in-Process Control

(10,000 jackets X 0.80 hour per jacket X $20 per hour) 160,000

Direct Manufacturing Labor Price Variance

(9,000 hours X $2 per hour) 18,000

Direct Manufacturing Labor Efficiency Variance

(1,000 hours X $20 per hour) 20,000

Wages Payable Control(9,000 hours X $22 per hour) 198,000

To record liability for direct manufacturing labor costs.


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Cost of Goods Sold 59,600

Direct Materials Price Variance 44,400Direct Materials Efficiency Variance 66,000

Direct Manufacturing Labor Price Variance 18,000

Direct Manufacturing Labor Efficiency Variance 20,000


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Materials: Buy not equal Use

chapter 7 enhanced

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