Orange Crush Bats has developed an evolutionary process to make professional qua

Question

Orange Crush Bats has developed an evolutionary process to make professional quality baseball bats. The firm has been operating for more than 10 years and has recently adopted a flexible forecasting process to evaluate the operational performance of the firm. The following forecasting information has been provided from the accounting department for you to use in your analysis. The information was used in preparing the firm's annual planning forecast. Forecasting Formulas Fixed VaiableStandard Quanity Standard Price $20.00 $4.50 $1.00 $0.2000 $3.00 9 pounds 0.05 hours 0.05 hours $0.5000 per pound $20.00 per hour $4.00 per hour Direct Materials Direct Labor $40,000 $4,000 $30,000 $10,000 $8,000 $6,000 Wages & Salaries Electricity Liability Insurance Employee Health Insurance $0.10 In March of this year, the original planning forecast assumed the number of bats produced and sold would be 23,000 The actual results from March are presented below: $600,000 Sales33,000 Direct Materials Direct Labor $170,000 $45,000 $5,000 $145,000 $6,000 $31,000 $12,000 $9,000 $7,000 Wages & Salaries Electricity Liability Insurance Employee Health Insurance Orange Crushed used the following amounts, and paid the following prices, for their product inputs: Direct Materials Direct Labor Variable Manufactuing Overhead Actual Quantity Used 320,000 pounds 2,000 hours 2,000 hours Actual Amount Paid $170,000 $45,000 $8,000 $0.53 Required: 1) Create the original planning forecast and the flexible forecast with the acutal results for March. 2) Calculate the direct material quantity variance and the direct material price variance. 3) Prepare the journal entries for direct materials in 2) above 4) Calculate the direct labor efficiency variance and the direct labor rate variance. 5) Prepare the journal entries for direct labor in 4) above. 6) Calculate the variable overhead efficiency variance and the variable overhead rate variance. 7) Prepare the journal entries for variable overhead in 6) above 8) Calculate the direct material quantity variance and the direct material price variance given the information below: Direct materials used Direct materials purchased: Cost of direct materials purchased $212,500.00 the same as in 2) above. 400,000 pounds 9) Prepare the journal entries for direct materials in 7) above

Explanation / Answer

PART -1 ORIGINAL PLANNING FORECAST AND FLEXIBLE FORECAST

Original planning forecast can be referred as static budget and Flexible forecast can be referred as flexible budget.

Flexible budget adjusts for changes in volume of activity and is more useful than static budget. Flexible budget is used to calculate variance also comparing it with actual results. Hence fixed is with respect to Standard data not Actual data in flexible budget.

$460000

(23000*$20)

$660000

($20*33000)

$103500

(23000*$4.5)

$148500

(33000*$4.5)

$23000

(23000*$1)

$33000

($1*33000)

$4600

(23000*$0.2)

$6600

($0.2*33000)

Wages and salary (Variable)

$69000

($3*23000)

$99000

($3*33000)

$2300

($0.1*23000)

$3300

($0.1*33000)

$2300

($0.1 * 23000)

$3300

($0.1*33000)

$40000

2) Direct Material quantity variance and Direct Material Price variance

Standard data for actual production vis-s-vis actual data

Material Price Variance

(Standard rate of material for actul production - actual rate of material)*Actual raw material units consumed

($0.5-$0.53125)*320000 = $10000 Unfavourable

Material quantity variance or Material usage variance or material yield variance

(standard quantity for actual production - actual quantity)*Standard price per unit

(297000 - 320000)*$0.5 = $11500 Unfavourable

Part 3 Journal entry for direct material variances

Part 4 - Direct labour efficience variance and direct labour rate variance

Standard data for actual production vis-s-vis actual data

Direct Labour Rate Variance

(Standard hour rate for actul production - actual hour rate labour)*Actual Labour hours taken

($20-$22.5)*2000 = $5000 Unfavourable

Direct Labour Efficiency variance

(Standard Labour hours for actual production - actual labour hours)* Weighted average cost of per labour hour

(1650 - 2000)*33000/1650 = $7000 Unfavourable

Part 5 - Journal for Direct Labour variances

Particulars Original planning forecast Flexible Forecast Sales

$460000

(23000*$20)

$660000

($20*33000)

Less :Costs Direct Material

$103500

(23000*$4.5)

$148500

(33000*$4.5)

Direct Labour

$23000

(23000*$1)

$33000

($1*33000)

Variable Overhead

$4600

(23000*$0.2)

$6600

($0.2*33000)

Wages and salary (Variable)

$69000

($3*23000)

$99000

($3*33000)

Electricity (variable)

$2300

($0.1*23000)

$3300

($0.1*33000)

Miscellaneous (Variable)

$2300

($0.1 * 23000)

$3300

($0.1*33000)

Contribution $255300 $366300 Wages and salary (Fixed)

$40000

$40000 Electricity (Fixed) $4000 $4000 Rent $30000 $30000 Liability Insurance $10000 $10000 Employee Health Insurance $8000 $8000 Miscellaneous (Fixed) $6000 $6000 Net Income $153300 $264300

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