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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Shumaker Company manufactures a line of high-top basketball shoes. At the beginning of the year, the following plans for production and costs were revealed:

Chapter 10, Problem 76P, Shumaker Company manufactures a line of high-top basketball shoes. At the beginning of the year, the , example  1

During the year, a total of 50,000 units were produced and sold. The following actual costs were incurred:

Chapter 10, Problem 76P, Shumaker Company manufactures a line of high-top basketball shoes. At the beginning of the year, the , example  2

There were no beginning or ending inventories of raw materials. In producing the 50,000 units 63,000 hours were worked, 5% more hours than the standard allowed for the actual output. Overhead costs are applied to production using direct labor hours.

Required:

  1. 1. Using a flexible budget, prepare a performance report comparing expected costs for the actual production with actual costs.
  2. 2. Determine the following: (a) Fixed overhead spending and volume variances and (b) Variable overhead spending and efficiency variances.

1.

To determine

Construct the performance report by comparing the expected costs for the actual production with actual costs with the help of flexible budget.

Explanation

Flexible Budgets:

Flexible budgets are prepared for various levels of activities or outputs. This enables the entity to know the result for the selected level of activity.

Performance report of the variances:

  Budgeted variance
Overhead cost item

Actual cost

(A)

($)

Actual Costs

(B)

($)

Spending variance

(A-B)

($)

Direct material775,000750,000125,000 (U)
Direct labor590,000600,000210,000 (F)
Variable overhead310,000300,000310,000 (U)
Fixed overhead180,000165,000415,000 (U)
Total1,855,0001,815,00040,000 (U)

Table (1)

Working Note:

1. Calculation of actual cost of direct material:

Actual Costs=Actual Units Produced×Standard Cost=55,000 Units×$15=$750,000

2

2.

To determine

Calculate the value of fixed overhead spending and volume variance. Also, calculate the value of variable overhead spending and efficiency variance.

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