Company's budgeted prices for direct materials, direct manufacturing labor, and direct marketing (distribution) labor per attaché case are $39, $7, and $12, respectively. The president is pleased with the following performance report:

Actual Costs Static Budget Variance
Direct materials 564,000 $400,000 $36,000 F
Direct manufacturing labor 78,000 80 2,000 F
Direct marketing (distribution) labor 110,000 120,000 10,000F

Actual output was 9,100 attaché cases. Assume all three direct-cost items above are variable costs.

Requirement:
a. Is the president's pleasure justified?
b. Prepare a revised performance report that uses a flexible budget and a static budget.

Question

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anthougo anthougo · Answer 1 · 2020-08-10T03:52:10+02:00

Answer:

a) The president's pleasure is not justified because the budget performance was unfavorable in all the variable costs.

b) Revised Flexible Performance Report

Flexible Actual Variance

Budget Costs

Direct materials $354,900 $564,000 $209,100 U

Direct manufacturing labor 63,700 78,000 14,300 U

Direct marketing (distribution) labor 109,200 110,000 800 U

Flexible Static Variance

Budget Budget

Direct materials $354,900 $400,000 $45,100 U

Direct manufacturing labor 63,700 80,000 16,300 U

Direct marketing (distribution) labor 109,200 120,000 10,800 U

Explanation:

a) Data and Calculations:

Actual Costs Static Budget Variance

Direct materials 564,000 $400,000 $36,000 F

Direct manufacturing labor 78,000 80,000 2,000 F

Direct marketing (distribution) labor 110,000 120,000 10,000 F

b) Budgeted Prices:

Direct materials = $39

Direct labor = $7

Direct marketing labor = $12

Actual Output = 9,100

Flexible Budget:

Direct materials = $354,900 ($39 x 9,100)

Direct labor = $63,700 ($7 x 9,100)

Direct marketing labor = $109,200 ($12 x 9,100)

The flexible budget for direct materials, labor and marketing were flexed in line with actual output.