Preparing a flexible budget and computing standard cost variancesMcKnight Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. Mcknight allocates overhead based on yards of direct materials. The company’s performance report includes the following selected data:RequirementsPrepare a flexible budget based on the actual number of recliners sold.Compute the cost variance and the efficiency variance for direct materials and for direct labor. For manufacturing overhead, compute the variable overhead cost, variable overhead efficiency, fixed overhead cost, and fixed overhead volume variances. Round to the nearest dollar.Have Mcknight’s managers done a good job or a poor job controlling materials, labor, and overhead costs? Why?Describe how McKnight’s managers can benefit from the standard cost system. Static Budget Actual Results(1,025 recliners) (1,005 recliners)$ 512,500Sales(1,025 recliners x $500 each)(1,005 recliners x $495 each)$ 497,475Variable Manufacturing Costs:Direct Materials(6,150 yds. e $8.50lyard)(6,300 yds. O $8.30lyard)52,27552,290Direct Labor(10,250 DLHr e $9.20/DLHr)94,300(9,850 DLHr e $9.40/DLHr)92,590Variable Overhead(6,150 yds. e $5.10yard)(6,300 yds. e $6.50lyard)31,36540,950Fixed Manufacturing Costs:Fixed Overhead62,73064,730Total Cost of Goods Sold240,670250,560Gross Profit$ 271,830$ 246,915

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Description: Preparing a flexible budget and computing standard cost variancesMcKnight Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. Mcknight allocates overhead based on yards of direct materials. The company’s p

1) Flexible budget: Sales - Total cost of goods sold = Gross Profit

Answered: Static Budget Actual Results (1,025…

Principles of Cost Accounting

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter7: The Master Budget And Flexible Budgeting

Section: Chapter Questions

Problem 7P: Preparing a performance report Use the flexible budget prepared in P7-6 for the 31,000-unit level...

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Preparing a flexible budget and computing standard cost variances

McKnight Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. Mcknight allocates overhead based on yards of direct materials. The company’s performance report includes the following selected data:

Requirements

Prepare a flexible budget based on the actual number of recliners sold.
Compute the cost variance and the efficiency variance for direct materials and for direct labor. For manufacturing overhead, compute the variable overhead cost, variable overhead efficiency, fixed overhead cost, and fixed overhead volume variances. Round to the nearest dollar.
Have Mcknight’s managers done a good job or a poor job controlling materials, labor, and overhead costs? Why?
Describe how McKnight’s managers can benefit from the standard cost system.

Static Budget Actual Results
(1,025 recliners) (1,005 recliners)
$ 512,500
Sales
(1,025 recliners x $500 each)
(1,005 recliners x $495 each)
$ 497,475
Variable Manufacturing Costs:
Direct Materials
(6,150 yds. e $8.50lyard)
(6,300 yds. O $8.30lyard)
52,275
52,290
Direct Labor
(10,250 DLHr e $9.20/DLHr)
94,300
(9,850 DLHr e $9.40/DLHr)
92,590
Variable Overhead
(6,150 yds. e $5.10yard)
(6,300 yds. e $6.50lyard)
31,365
40,950
Fixed Manufacturing Costs:
Fixed Overhead
62,730
64,730
Total Cost of Goods Sold
240,670
250,560
Gross Profit
$ 271,830
$ 246,915

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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