Ashley Sofa Store produces sofas. The following budgeted and actual amounts are
ID: 2378560 • Letter: A
Question
Ashley Sofa Store produces sofas. The following budgeted and actual amounts are for 2006:
Cost
Budget at 5,000 units
Actual Amounts at 5,800 units
Direct materials
$55,000
$65,000
Direct labor
70,000
81,000
Equipment depreciation
5,000
5,000
Indirect labor
7,500
8,600
Indirect materials
9,000
9,600
Rent and insurance
12,000
13,000
Instructions
Prepare a 3 column (Budget, Actual and difference in terms of favorable or unfavorable line items) performance report for Ashley Sofa Store for the year.
Cost
Budget at 5,000 units
Actual Amounts at 5,800 units
Direct materials
$55,000
$65,000
Direct labor
70,000
81,000
Equipment depreciation
5,000
5,000
Indirect labor
7,500
8,600
Indirect materials
9,000
9,600
Rent and insurance
12,000
13,000
Explanation / Answer
To complete this problem, set up a third column and subtract column A (budget) from column B (actual). This will give you either a negative or positive number - you have to decide if it is favorable or unfavorable based on the budget. To determine if it is favorable or unfavorable, you should divide column A by 5,000 units to see the cost per unit, then do the same for column B (but divide by 5,800 units). If the cost is more in B than A, then it is unfavorable. It is favorable if the cost per unit in column B is less than A.
Good luck!
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