1. Calculate the sales volume variance and flexible budget variance for operatin
ID: 2457002 • Letter: 1
Question
1. Calculate the sales volume variance and flexible budget variance for operating income.7-29 Flexible budget, direct materials, and direct manufacturing labor variances. Milan Statuary manufactures bust statues of famous historical figures. All statues are the same size. Each unit requires the same amount of resources. The following information is from the static budget for 2014: Expected production and sales Expected selling price per unit Total fixed costs 6,100 units S 700 $1,350,000 Standard quantities, standard prices, and standard unit costs follow for direct materials and direct manu- facturing labor Direct materials Direct manufacturing labor Standard Quantity 16 pounds 3.8 hours Standard Price $14 per pound S 30 per hour Standard Unit Cost $224 $114 During 2014, actual number of units produced and sold was 5,100, at an average selling price of $730. Actual cost of direct materials used was $1,149,400, based on 70,000 pounds purchased at $16.42 per pound. Direct manufacturing labor-hours actually used were 17,000, at the rate of $33.70 per hour. As a result, actual direct manufacturing labor costs were $572,900. Actual fixed costs were $1,200,000. There were no begin- ning or ending inventories. 1. Calculate the sales-volume variance and flexible-budget variance for operating income. 2. Compute price and efficiency variances for direct materials and direct manufacturing labor.
Explanation / Answer
Answer to Part 1:
Calculation of Sales Volume Variance:
Given data,
Expected Production and sales = Budgeted Sales, BQ = 6100 units
Budgeted Margin, BM:
Particulars
Amount ($)
Selling Price
700
Costs:
Direct Material
224
Direct Manufacturing Labor
114
Fixed Cost
1350000 / 6100 = 221.31
Total Cost
(559)
Budgeted Margin
141
Actual Sales, AQ = 5100 units
Sales Volume Variance = (AQ-SQ) * BM
= (5100 - 6100)* 141
=$141000 (A)
Calculation of Flexible Budget Variance:
Given Data,
Budgeted Price, BP =$700
Actual Price, AP = $730
Actual Sales, AQ = 5100 units
Flexible Budget Variance = (BP - AP) * AQ
= (700 – 730) * 5100
= $153000 (F)
Sales Volume Variance = $141000 (A)
Flexible Budget Variance = $153000 (F)
Answer to Part 2:
Computation of price and efficiency variances for direct materials:
Given data,
Standard Price of Direct Material, SP = $14
Actual Price of Direct Material, AP = $16.42
Actual Quantity, AQ = 70000 pounds
Standard Quantity, SQ for actual output = 81600 pounds
[1unit – 16 pounds, 5100 units - ? pounds]
Material Price Variance = (Standard Price – Actual Price) * Actual Quantity
= (14 – 16.42) * 70000
= $169400 (A)
Material Efficiency Variance = (Standard Quantity – Actual Quantity) * Standard Price
= (81600 - 70000) * 14
= $ 162400 (F)
Computation of price and efficiency variances of direct manufacturing labor:
Given data,
Standard rate of direct manufacturing labor, SR = $30
Actual Rate of direct manufacturing labor, AR = $33.70
Actual hours, AH = 17000 hrs
Standard hours for actual quantity =19380 hrs
[1unit – 3.8 hrs, 5100 units - ? hrs]
Direct Manufacturing labor price variance = (Standard Rate – Actual Rate) * Actual Hours
= (30 – 33.70) * 17000
= $ 62900 (A)
Direct Manufacturing Labor Efficiency Variance = (Standard hours – Actual Hours) * Standard Rate
=(19380 - 17000) * 30
=$71400 (F)
Material Price Variance = $169400 (A)
Material Efficiency Variance = $162400 (F)
Labor Price Variance = $62900 (A)
Labor Efficiency Variance = $71400 (F)
Particulars
Amount ($)
Selling Price
700
Costs:
Direct Material
224
Direct Manufacturing Labor
114
Fixed Cost
1350000 / 6100 = 221.31
Total Cost
(559)
Budgeted Margin
141
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