Concept explainers
LawnMate Company manufactures power mowers that are sold throughout the United States and Canada. The company uses a comprehensive budgeting process and compares actual results to budgeted amounts on a monthly basis. Each month, LawnMate’s accounting department prepares a
When the
The total variable costs of $780,000 for May include $320,000 for direct material, $192,000 for direct labor, $176,000 for variable production overhead, and $92,000 for variable selling expenses. Ballard believes that LawnMate’s monthly reports would be more meaningful to everyone if the company adopted flexible budgeting and prepared more detailed analyses.
Required:
- 1. Prepare a flexible budget for LawnMate Company for the month of May that includes separate variable-cost budgets for each type of cost (direct material, etc.).
- 2. Determine the variance between the flexible budget and actual cost for each cost item.
- 3. Discuss how the revised
budget and variance data are likely to impact the behavior of Al Richmond, the production manager. - 4. Build a spreadsheet: Construct an Excel spreadsheet to solve requirements (1) and (2) above. Show how the solution will change if the following information changes: actual sales amounted to 4,700 units, and actual fixed overhead was $179,000.
Want to see the full answer?
Check out a sample textbook solutionChapter 11 Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
- Greiner Company makes and sells high-quality glare filters for microcomputer monitors. John Craven, controller, is responsible for preparing Greiners master budget and has assembled the following data for the coming year. The direct labor rate includes wages, all employee-related benefits, and the employers share of FICA. Labor saving machinery will be fully operational by March. Also, as of March 1, the companys union contract calls for an increase in direct labor wages that is included in the direct labor rate. Greiner expects to have 5,600 glare filters in inventory on December 31 of the current year, and has a policy of carrying 35 percent of the following month's projected sales in inventory. Information on the first four months of the coming year is as follows: Required: 1. Prepare the following monthly budgets for Greiner Company for the first quarter of the coming year. Be sure to show supporting calculations. a. Production budget in units b. Direct labor budget in hours c. Direct materials cost budget d. Sales budget 2. Calculate the total budgeted contribution margin for Greiner Company by month and in total for the first quarter of the coming year. Be sure to show supporting calculations. (CMA adapted)arrow_forwardThe controller for Muir Companys Salem plant is analyzing overhead in order to determine appropriate drivers for use in flexible budgeting. She decided to concentrate on the past 12 months since that time period was one in which there was little important change in technology, product lines, and so on. Data on overhead costs, number of machine hours, number of setups, and number of purchase orders are in the following table. Required: 1. Calculate an overhead rate based on machine hours using the total overhead cost and total machine hours. (Round the overhead rate to the nearest cent and predicted overhead to the nearest dollar.) Use this rate to predict overhead for each of the 12 months. 2. Run a regression equation using only machine hours as the independent variable. Prepare a flexible budget for overhead for the 12 months using the results of this regression equation. (Round the intercept and x-coefficient to the nearest cent and predicted overhead to the nearest dollar.) Is this flexible budget better than the budget in Requirement 1? Why or why not?arrow_forwardAnders Painting Service specializes in painting tall office buildings. During a recent month, the company worked on three painting projects (the Arrow Building, the Besler Building and the Cartrwright Building). The company is interested in controlling the materials costs, namely the paint, used for these painting contracts. In order to provide management with useful cost control information, the company uses standard costs and prepares monthly variance reports. Analysis reveals that the purchasing agent mistakenly purchased poor-quality paint for the Arrow Building project. The Besler Building project, however, received higher-than-standard-quality paint that was on sale. The Cartwright Building project received standard-quality paint. However, the price had increased and a new employee was used to paint the building. Shown below are quantity and cost data for each project. Actual Project Arrow Building Besler Building Cartwright Building 4,500 Total variance Quantity 3,750 gallons…arrow_forward
- The Terminator Inc. provides on-site residential pest extermination services. The company has severalmobile teams who are dispatched from a central location in company-owned trucks. The company usesthe number of jobs to measure activity. At the beginning of April, the company budgeted for 100 jobs, butthe actual number of jobs turned out to be 105. A report comparing the budgeted revenues and costs to theactual revenues and costs appears below:The Terminator Inc.Variance ReportFor the Month Ended April 30Planning ActualBudget Results VariancesJobs ............................................ 100 105Revenue ...................................... $19,500 $20,520 $1,020 FExpenses:Mobile team operating costs ..... 10,000 10,320 320 UExterminating supplies ............ 1,800 960 840 FAdvertising ............................... 800 800 0Dispatching costs .................... 2,200 2,340 140 UOffice rent ................................ 1,800 1,800 0Insurance .................................…arrow_forwardSeveral years ago, Westmont Corporation developed a comprehensive budgeting system for planning and control purposes. While departmental supervisors have been happy with the system, the factory manager has expressed considerable dissatisfaction with the information being generated by the system. A report for the company's Assembly Department for the month of March follows: Assembly Department Cost Report For the Month Ended March 31 Machine-hours Variable costs: Supplies Scrap Indirect materials Fixed costs: Wages and salaries Equipment depreciation Total cost Actual Results 25,000 Planning Budget Variances 30,000 $ 5,700 $ 6,300 $ 600 F 15,400 16,500 1,100 F 50,600 57,000 6,400 F 63,100 61,000 2,100 U 91,000 91,000 $ 225,800 $ 231,800 $ 6,000 F After receiving a copy of this cost report, the supervisor of the Assembly Department stated, "These reports are super. It makes me feel really good to see how well things are going in my department. I can't understand why those people upstairs…arrow_forwardFire King manufactures safes- mobile safes, and walk-in stationary bank safes. As part of its annual budgeting process, Custer is analyzing the profitability of its two products. Part of this analysis involves estimating the amount of overhead to be allocated to each product line. The following information relates to overhead. (a) The total estimated manufacturing overhead was $235,000. Under traditional costing (which assigns overhead on the basis of direct-labor hours), what amount of manufacturing overhead costs are assigned to One mobile safe? The total estimated manufacturing overhead of $235,000 was comprised of $150,000 for material-handling costs and $85,000 for purchasing activity costs. Under activity-based costing (ABC): (b) What amount of material handling costs are assigned to One mobile safe? (c) What amount of purchasing activity costs are assigned to One mobile safe?arrow_forward
- Harrison, Inc. is preparing their budget for the upcoming year and requires a breakdown of the costs of power used in its factory into the fixed and variable components. They have determined the number of direct labor hours worked affects the cost of power. The following data on the cost of power used and direct labor hours worked are available for the last six months of this year: Month July August September October High-Low Method November December Total Cost of Power $ 14,850 15,400 16,370 19,800 17,600 18,500 $102.520 Direct Labor Hours 3,000 2,050 2,900 3,650 2,670 2,650 16.920 1. Assuming that Harrison uses the high-low method of analysis, calculate the cost function to be used to estimate the power costs. 2. They have determined that production needs will require 8,467 direct labor hours. Using the cost function calculated above, what is the estimated cost of power?arrow_forwardCarad Co. is an electronics company which makes two types of televisions – plasma screenTVs and LCD TVs. It operates within a highly competitive market and is constantly underpressure to reduce prices and develop new products. Carad Co. operates a standard costingsystem and performs a detailed variance analysis of both products on a monthly basis. Extracts from the management information for the month of November are shown below:NoteTotal number of units made and sold 1,400 1Material price variance $28,000 A 2 Notes.(1) The budgeted total sales volume for TVs was 1,180 units, consisting of an equal mixof plasma screen TVs and LCD screen TVs. Actual sales volume was 750 plasmaTVs and 650 LCD TVs. Standard sales prices are $350 per unit for the plasma TVsand $300 per unit for the LCD TVs. The actual sales prices achieved duringNovember were $330 per unit for plasma TVs and $290 per unit for LCD TVs. Thestandard contributions…arrow_forwardBramble Company manufactures deep-sea fishing rods, which it distributes internationally through a chain of wholesalers. The following data are taken from the budget prepared at the beginning of the year by Bramble's controller. The company applies overhead on the basis of machine hours. Variable manufacturing overhead Fixed manufacturing overhead Direct labor hours Machine hours Variable overhead spending variance Annual Budget $2,062,400 $1,202,280 Variable overhead efficiency variance During the month of May, Bramble used 4,350 direct labor hours and 21,890 machine hours. The flexible budget for the month allowed 4,450 direct labor hours and 21,200 machine hours. Actual fixed manufacturing overhead incurred was $109,400; variable manufacturing overhead incurred was $173,320. Fixed overhead spending variance (a) Calculate the variable overhead spending and efficiency variances for May. (Round per unit value to 2 decimal places, e.g. 52.75 and final answers to 0 decimal places, eg.…arrow_forward
- Carpenter Company uses standard costing. The company has a manufacturing plant in Georgia. Standard labor-hours per unit are 0.50, and the variable overhead rate for the Georgia plant is $3.50 per direct labor-hour. Fixed overhead for the Georgia plant is budgeted at $1,800,000 for the year. Firm management has always used variance analysis as a performance measure for the plant. Tom Saban has just been hired as a new controller for Carpenter Company. Tom is good friends with the Georgia plant manager and wants him to get a favorable review. Tom decides to underestimate production, and budgets annual output of 1,200,000 units. His explanation for this is that the economy is slowing and sales are likely to decrease. At the end of the year, the plant reported the following actual results: output of 1,500,000 using 760,000 labor-hours in total, at a cost of $2,700,000 in variable overhead and $1,850,000 in fixed overhead. Q.What do you think of Tom Saban’s behavior overall?arrow_forwardCarpenter Company uses standard costing. The company has a manufacturing plant in Georgia. Standard labor-hours per unit are 0.50, and the variable overhead rate for the Georgia plant is $3.50 per direct labor-hour. Fixed overhead for the Georgia plant is budgeted at $1,800,000 for the year. Firm management has always used variance analysis as a performance measure for the plant. Tom Saban has just been hired as a new controller for Carpenter Company. Tom is good friends with the Georgia plant manager and wants him to get a favorable review. Tom decides to underestimate production, and budgets annual output of 1,200,000 units. His explanation for this is that the economy is slowing and sales are likely to decrease. At the end of the year, the plant reported the following actual results: output of 1,500,000 using 760,000 labor-hours in total, at a cost of $2,700,000 in variable overhead and $1,850,000 in fixed overhead. Q. Compute the fixed overhead spending and volume variancesarrow_forwardCarpenter Company uses standard costing. The company has a manufacturing plant in Georgia. Standard labor-hours per unit are 0.50, and the variable overhead rate for the Georgia plant is $3.50 per direct labor-hour. Fixed overhead for the Georgia plant is budgeted at $1,800,000 for the year. Firm management has always used variance analysis as a performance measure for the plant. Tom Saban has just been hired as a new controller for Carpenter Company. Tom is good friends with the Georgia plant manager and wants him to get a favorable review. Tom decides to underestimate production, and budgets annual output of 1,200,000 units. His explanation for this is that the economy is slowing and sales are likely to decrease. At the end of the year, the plant reported the following actual results: output of 1,500,000 using 760,000 labor-hours in total, at a cost of $2,700,000 in variable overhead and $1,850,000 in fixed overhead. Q. Compute the budgeted fixed cost per labor-hour for the fixed…arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning