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Preston Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. Preston allocates overhead based on yards of direct materials.

Preston Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. Preston allocates overhead based on yards of direct materials.
P23-26A Preparing a flexible budget and computing standard cost variances [60–75 min]
P23-26A Preston Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. Preston allocates overhead based on yards of direct materials.
The company’s performance report includes the following selected data:
 
Static Budget
(1,000 recliners)
Actual Results
(980 recliners)
Sales (1,000 recliners _ $ 495)
$ 495,000
 
         (980 recliners _ $ 475)
 
$ 465,500
Variable manufacturing costs:
 
 
   Direct materials (6,000 yds @ $8.80/yard)
52,800
 
                            (6,150 yds @ $8.60/yard)
 
52,890
   Direct labor (10,000 hrs @ $9.20/hour)
92,000
 
                      (9,600 hrs @ $9.30/hour)
           
89,280
   Variable overhead  (6,000 yds @ $5.00/yard)
30,000
 
                                  (6,150 yds @ $6.40/yard)
 
39,360
Fixed manufacturing costs:
 
 
    Fixed overhead
60,000
62,000
Total cost of goods sold
$ 234,800
$ 243,530
Gross profit
$ 260,200
$ 221,970
Requirements
1. Prepare a flexible budget based on the actual number of recliners sold.
2. Compute the price variance and the efficiency variance for direct materials and for direct labor. For manufacturing overhead, compute the variable overhead spending, variable overhead efficiency, fixed overhead spending, and fixed overhead volume variances.
3. Have Preston’s managers done a good job or a poor job controlling materials, labor, and overhead costs? Why?
4. Describe how Preston’s managers can benefit from the standard costing system.
 
TUTORIAL[ANSWERKEY]
Group A
(60-75 min.)  P 23-26A
Req. 1
Preston Recliners
Flexible Budget For Actual Outputs
Sales revenue (980 × $495)
$485,100
Variable manufacturing costs:
 
   Direct materials (5,880 yards × $8.80)a
  51,744
   Direct labor (9,800 hours × $9.20) b
90,160
 
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