60.1K

Verified Solution

Link Copied!

Flexible Budgets and Standard Costs

	Per unit output	Quantity to be used	Total Cost
Direct materials, 4 oz. @ $0.31/oz	$1.24 per unit	100,000 oz	$31,000
Direct labor, .25 hours @ $6 per hour	$1.50 per unit	6,250 hours	37,500
Overhead	$1.00 per unit		25,000

Pacific Company provides the following information about its budgeted and actual results for June 2014. Although the expected June volume was 25,000 units produced and sold, the company actually produced and sold 27,000 units as detailed here:

	Budgeted 25,000 units	Actual 27,000 units
Selling price	$5		$5.23
Variable costs
Direct materials	$1.24		$1.12
Direct labor	$1.50		$1.40
Factory supplies	.25		.37
Utilities	.50		.60
Selling costs	.40		.34

Fixed costs
Depreciation machinery*	$3,750	$3,710
Depreciation building*	2,500	2,500
General liability insurance	1,200	1,250
Property taxes	500	485
Other administrative expense	750	900

^* Indicates factory overhead item; $ 0.75 per unit or $ 3 per direct labor hour for variable overhead, and $ 0.25 per unit or $ 1 per direct labor hour for fixed overhead.

Standard costs based on expected output of 25,000 units

Actual costs incurred to produce 27,000 units

	Per unit output	Quantity to be used	Total Cost
Direct materials, 4 oz. @ $0.28/oz	$1.12 per unit	108,000 oz	$30,240
Direct labor, .20 hours @ $7 per hour	$1.40 per unit	5,400 hours	37,800
Overhead	$1.20 per unit		32,400

Standard costs based on expected output of 27,000 units

	Per unit output	Quantity to be used	Total Cost
Direct materials, 4 oz. @ $0.31/oz	$1.24 per unit	108,000 oz	$33,480
Direct labor, .25 hours @ $6 per hour	$1.50 per unit	6,750 hours	40,500
Overhead			26,500

Required

Prepare June flexible budgets showing expected sales, costs, and net income assuming 20,000, 25,000, and 30,000 units of output produced and sold.

Prepare a flexible budget performance report that compares actual results with the amounts budgeted if the actual volume had been expected.

Apply variance analysis for direct materials and direct labor.

Compute the total overhead variance, and the controllable and volume variances.

Compute spending and efficiency variances for overhead.

Prepare journal entries to record standard costs, and price and quantity variances, for direct materials, direct labor, and factory overhead.

Answer & Explanation Solved by verified expert

See Answer