Variance Analysis: Selling-price, sales-volume & flexible budget
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Ultra, Inc., manufactures a full line of well-known sunglasses frames and lenses. Ultra uses a standard costing system to set attainable standards for direct materials, labor, and overhead costs. Ultra reviews and revises standards annually as necessary. Department managers, whose evaluations and bonuses are affected by their department's performance, are held responsible to explain variances in their department performance reports.
Recently, the manufacturing variances in the Delta prestige line of sunglasses have caused some concern. For no apparent reason, unfavorable materials and labor variances have occurred. At the monthly staff meeting, John Puckett, manager of the Image line, will be expected to explain his variances and suggest ways of improving performance. Barton will be asked to explain the following performance report for 2014:
Actual Results Static-Budget Amounts
Units sold 7,300 7,800
Revenues $576,700 $608,400
Variable manufacturing costs 346,604 273,000
Fixed manufacturing costs 111,000 114,000
Gross margin 119,096 221,400
Barton collected the following information:
Three items comprised the standard variable manufacturing costs in 2014:
• Direct materials: Frames. Static budget cost of $35,880. The standard input for 2014 is 2.00 ounces per unit.
• Direct materials: Lenses. Static budget costs of $96,720. The standard input for 2014 is 4.00 ounces per unit.
• Direct manufacturing labor: Static budget costs of $140,400. The standard input for 2014 is 1 hour per unit.
Assume there are no variable manufacturing overhead costs.
The actual variable manufacturing costs in 2014 were as follows:
• Direct materials: Frames. Actual costs of $70,080. Actual ounces used were 4.00 ounces per unit.
• Direct materials: Lenses. Actual costs of $131,400. Actual ounces used were 6.00 ounces per unit.
• Direct manufacturing labor: Actual costs of $145,124. The actual labor rate was $14.20 per hour.
Prepare a report that includes the following:
• Selling-price variance
• Sales-volume variance and flexible-budget variance for operating income
• Price and efficiency variances for the following:
Direct materials: frames
Direct materials: lenses
Direct manufacturing labor
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Solution Summary
Using the Ultra Inc example, the Solution includes a report on variances for selling price, sales volume, and flexible budget.
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