Flexible Budgeting and Variance Analysis I'm Really Cold Coat Company makes women's and men's coats. 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 lbs. 5.20 lbs. $2.00 per lb. Liner 7.00 yds. 9.40 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 $14.00 per hr. $13.00 per hr. I'm Really Cold Coat 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 Coat 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. Required: 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 variance, direct materials quantity variance, and total variance. b. Direct labor rate variance, direct labor time variance, and total variance. Round your answers to two decimal places, if necessary. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. a. Direct materials price variance $fill in the blank 1 Direct materials quantity variance $fill in the blank 3 Total direct materials cost variance $fill in the blank 5 b. Direct labor rate variance $fill in the blank 7 Direct labor time variance $fill in the blank 9 Total direct labor cost variance $fill in the blank 11 2. The variance analyses should be based on the amounts at volumes. The budget must flex with the volume changes. If the volume is different from the planned volume, as it was in this case, then the budget used for performance evaluation should reflect the change in direct materials and direct labor that will be required for the production. In this way, spending from volume changes can be separated from efficiency and price variances.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Flexible
I'm Really Cold Coat Company makes women's and men's coats. 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 lbs. | 5.20 lbs. | $2.00 per lb. | |||
Liner | 7.00 yds. | 9.40 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 | $14.00 per hr. | $13.00 per hr. |
I'm Really Cold Coat 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 Coat 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.
Required:
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 variance, direct materials quantity variance, and total variance.
b. Direct labor rate variance, direct labor time variance, and total variance.
Round your answers to two decimal places, if necessary. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.
a. | Direct materials price variance | $fill in the blank 1 | ||
Direct materials quantity variance | $fill in the blank 3 | |||
Total direct materials cost variance | $fill in the blank 5 | |||
b. | Direct labor rate variance | $fill in the blank 7 | ||
Direct labor time variance | $fill in the blank 9 | |||
Total direct labor cost variance | $fill in the blank 11 |
2. The variance analyses should be based on the amounts at volumes. The budget must flex with the volume changes. If the volume is different from the planned volume, as it was in this case, then the budget used for performance evaluation should reflect the change in direct materials and direct labor that will be required for the production. In this way, spending from volume changes can be separated from efficiency and price variances.
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