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Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
ISBN: 9781285866307

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BuyFindarrow_forward

Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
ISBN: 9781285866307
Textbook Problem

Budget performance report

Genie in a Bottle Company (GBC) manufactures plastic two-liter bottles for the beverage in­dustry. The cost standards per 100 two-liter bottles are as follows:

Cost Category Standard Cost per 100 Two-Liter Bottles
Direct labor $ 2.00
Direct materials 9.10
Factory overhead 0.55
Total $11.65

At the beginning of July, GBC management planned to produce 400,000 bottles. The actual number of bottles produced for July was 406,000 bottles. The actual costs for July of the current year were as follows:

Cost Category Actual Cost for the Month Ended July 31
Direct labor $7,540
Direct materials 35,750
Factory overhead 2,680
Total $45,970
  • A. Prepare the July manufacturing standard cost budget (direct labor, direct materials, and factory overhead) for GBC, assuming planned production.
  • B. Prepare a budget performance report for manufacturing costs, showing the total cost variances for direct materials, direct labor, and factory overhead for July.
  • C. Interpret the budget performance report.

A.

To determine

Manufacturing cost budget:

Manufacturing cost budget is a budget comprised of the budgeted costs for materials purchases, direct labor, and factory overhead, which are determined by multiplying their standard costs per unit by the planned level of production.

Budget performance report:

A budget performance report is the summary of the differences between the actual costs, and the standard costs for the units produced. When the actual cost is less than the standard cost, then it is favorable cost variance. When the actual cost is more than the standard cost, then it is unfavorable cost variance.

To prepare: The July manufacturing standard cost budget for Company GB assuming planned production.

Explanation

Prepare the July manufacturing standard cost budget for Company GB assuming planned production.

Company GB

Manufacturing Cost Budget

For the Month Ended July 31

 

Standard Cost at

Planned Volume (400,000)                                                                                                          Bottles)

Manufacturing costs:  
Direct labor                 (1)

$8,000

Direct materials           (2) 36,400
Factory overhead         (3)

2,200

Total manufacturing costs

$ 46,600

Table (1)

Working notes:

Direct labor = Standard cost×Planned level of production= $2

B.

To determine

To prepare: A budget performance report for manufacturing costs, showing the total cost variances for direct materials, direct labor, and factory overhead for July.

C.

To determine

To interpret: The budget performance report.

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