# Flexible budgeting and variance analysis I’m Really Cold Coat Company makes women’s and men’s coals. Both products require filler and lining material. The following planning information has been made available: Standard Amount per Unit Women’s Coats Men’s Coats Standard Price per Unit Filler 4.0 lb. 5.2 lb. $2.00 per lb. Liner 7.0 yds. 9.4 yds. 8.00 per yd. Standard labor time 0.40 hr. 0.50 hr. Women s Coats Men’s Coats Planned production 5.000 units 6,200 units Standard labor rate S14.00 per hr.$ 13.00 per hr. I’m Really Cold Coal Company does not expect there to be any beginning or ending inventories of filler and lining material. At the end of the budget year. I’m Really Cold Coal Company experienced the following actual results: Women’s Coats Men’s Coats Actual production 4.400 5,800 Actual Price per Unit Actual Quantity Purchased and Used Filler $1.90 per lb. 48,000 Liner 8.20 per yd. 85,100 Actual Labor Rate Actual Labor Hours Used Women’s coats$14.10 per hr. 1.825 Men’s coats 13.30 per hr. 2,800 The expected beginning inventory and desired ending inventory were realized. Instructions 1. Prepare the following variance analyses for both coats and the total, based on the actual results and production levels at the end of the budget year: a. Direct materials price, quantity, and total variance b. Direct labor rate, time, and total variance 2. Why are the standard amounts in part (1) based on the actual production at the end of the year instead of the planned production at the beginning of the year?

### Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

### Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

#### Solutions

Chapter
Section
Chapter 23, Problem 23.2BPR
Textbook Problem

## Flexible budgeting and variance analysis I’m Really Cold Coat Company makes women’s and men’s coals. Both products require filler and lining material. The following planning information has been made available:   Standard Amount per Unit     Women’s Coats Men’s Coats Standard Price per Unit Filler 4.0 lb. 5.2 lb. $2.00 per lb. Liner 7.0 yds. 9.4 yds. 8.00 per yd. Standard labor time 0.40 hr. 0.50 hr. Women s Coats Men’s Coats Planned production 5.000 units 6,200 units Standard labor rate S14.00 per hr.$ 13.00 per hr.  I’m Really Cold Coal Company does not expect there to be any beginning or ending inventories of filler and lining material. At the end of the budget year. I’m Really Cold Coal Company experienced the following actual results:   Women’s Coats Men’s Coats Actual production 4.400 5,800   Actual Price per Unit Actual Quantity Purchased and Used Filler $1.90 per lb. 48,000 Liner 8.20 per yd. 85,100 Actual Labor Rate Actual Labor Hours Used Women’s coats$14.10 per hr. 1.825 Men’s coats 13.30 per hr. 2,800  The expected beginning inventory and desired ending inventory were realized. Instructions 1.    Prepare the following variance analyses for both coats and the total, based on the actual results and production levels at the end of the budget year: a.    Direct materials price, quantity, and total variance b.    Direct labor rate, time, and total variance 2.    Why are the standard amounts in part (1) based on the actual production at the end of the year instead of the planned production at the beginning of the year?

Expert Solution

(1), (a)

To determine

Direct labor variances:

The difference between the actual labor cost in the production and the standard labor cost for actual production is known as direct labor cost variance. The direct labor variance can be classified as follows:

• Labor rate variance.
• Labor time variance.

Direct material variances:

The difference between the actual material cost per unit and the standard material cost per unit for the direct material purchased is known as direct material cost variance. The direct material variance can be classified as follows:

• Direct materials price variance.
• Direct materials quantity variance.

To prepare: Direct materials price variance, direct materials quantity variance, and the total direct material cost variance.

### Explanation of Solution

• The direct materials price variance for filler is determined as follows:

Direct materials price variance = [(Actual priceStandard price)× Actual quantity]=[($1.90$2.00)×48,000 lb.]=$0.10× 48,000 =$(4,800)

• The direct materials price variance for liner is determined as follows:

Direct materials price variance = [(Actual priceStandard price)× Actual quantity]=[($8.20$8.00)×85,100 lb.]=$0.20× 85,100=$17,020

Therefore, the total direct materials price variance is ($(4,800)F+$17,020U) $12,220 and it is an unfavorable variance. • The direct materials quantity variance for filler a is determined as follows: Direct materials quantity variance = [(Actual quantityStandard quantity (1))× Standard price]=[(48,000 lb.47,760 lb.)×$2.00]=$240×$2.00=\$480

• The direct materials quantity variance for liner is determined as follows:

Direct materials quantity variance = [(Actual quantityStandard quantity (2))× Standard price]=[(85,100 lb.85,320 lb

Expert Solution

(2)

To determine

To explain: The reason that the standard amounts in part (1) based on the actual production for the year instead of the planned production for the year.

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