he following summary data are from a performance report for Sterling Company for May, during which 19,200 units were produced. The budget reflects the company’s normal capacity of 20,000 units. Actual Cost Budget 19,200 20,000 Variances units units $ Type Direct material $300,960 $308,000 $(7,040) Favorable Direct labor 609,840 616,000 (6,160) Favorable Variable overhead 216,480 211,200 5,280 Unfavorable Fixed overhead 159,280 158,400 880 Unfavorable Total $1,286,560 $1,293,600 $(7,040) a. Prepare a new performance report using flexible budgeting. Round all amounts to the nearest dollar.
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.
Using Flexible Budgets
The following summary data are from a performance report for Sterling Company for May, during which 19,200 units were produced. The budget reflects the company’s normal capacity of 20,000 units.
| Actual Cost | Budget | |||
|---|---|---|---|---|
| 19,200 | 20,000 | Variances | ||
| units | units | $ | Type | |
| Direct material | $300,960 | $308,000 | $(7,040) | Favorable |
| Direct labor | 609,840 | 616,000 | (6,160) | Favorable |
| Variable |
216,480 | 211,200 | 5,280 | Unfavorable |
| Fixed overhead | 159,280 | 158,400 | 880 | Unfavorable |
| Total | $1,286,560 | $1,293,600 | $(7,040) |
a. Prepare a new performance report using flexible budgeting. Round all amounts to the nearest dollar.
| Actual | Flexible | Variance | ||
|---|---|---|---|---|
| Costs | Budget | $ | Type | |
| Direct material | Answer
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| Direct labor | Answer
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Answer
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| Variable overhead | Answer
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| Fixed overhead | Answer
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| Totals |
b. Which of the two performance reports should Sterling Company management use to measure
the company's operating efficiency in May?
Answer
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