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.
