The cost accountant for Sherman’s Co. prepared the following monthly performance

Question

The cost accountant for Sherman’s Co. prepared the following monthly performance report relating to the Production Department.

                                                                                                         Budgeted                 Actual   

                                                                                                       Production            Production

                                                                                                 (10,000 Units)      (11,000 Units)

         Direct materials used...................................................       $240,000              $260,000

         Direct labor ................................................................       $100,000              $101,000

         Variable manufacturing overhead................................         $60,000                $65,000

         Fixed manufacturing overhead....................................       $160,000              $164,000

1       Refer to the above data. Compute the amounts that should be included for each of the following in a flexible budget prepared at an 11,000-unit level of production:

         a    Direct materials: $____________

         b    Direct labor: $____________

         c    Fixed manufacturing overhead: $____________

         d    Variable manufacturing overhead: $____________

2       Refer to the above data. Assume that a revised performance report is prepared for the 11,000unit level of production using a flexible budget approach. Compute the cost variances for each of the following. Indicate whether each variance is favorable (F) or unfavorable (U).

         a    Direct materials variance from flexible budget: $____________

         b    Direct labor variance from flexible budget: $____________

         c    Total manufacturing overhead variance from flexible budget: $____________

Explanation / Answer

1. a. Direct materails = 240000/10000*11000

= $264000

b. Direct labor = 100000/10000*11000

= $110000

c. Fixed manufacturing overhead = $160000

d. Variable manufacturing overhead = 60000/10000*11000

= $66000

2. a. Direct material variance = Standard Cost of material - Actual Cost of material

= $264000 - $260000

= $4000 F

b. Direct labor variance = Standard Cost of labor - Actual cost of labor

= $110000 - 101000

= $9000 F

c. Total manufacturing overhead cost variance = Standard total cost of manufacturing overhead - Actual total cost of manufacturing overhead

= (160000+66000) - (164000+65000)

= $3000 U

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