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Assumptions: Selling Expenses Is 3 % of Sales and Administrative Expenses Is 5 % of Sales

This document contains budgets for sales, production, direct materials, direct labor, and overhead for a company for quarters 1-4. It also includes flexible budgets at different production levels and an analysis of variances from the flexible budget for actual results in May. There were favorable variances for direct materials ($80k), direct labor ($16k), and overhead ($30k). However, direct materials had an unfavorable price variance of $27.5k due to using a higher quality material. Direct labor had an unfavorable rate variance of $8.1k due to bonus payments. Variable overhead had an unfavorable spending variance of $7k due to higher actual rates.

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Lara Lewis Achilles
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34 views12 pages

Assumptions: Selling Expenses Is 3 % of Sales and Administrative Expenses Is 5 % of Sales

This document contains budgets for sales, production, direct materials, direct labor, and overhead for a company for quarters 1-4. It also includes flexible budgets at different production levels and an analysis of variances from the flexible budget for actual results in May. There were favorable variances for direct materials ($80k), direct labor ($16k), and overhead ($30k). However, direct materials had an unfavorable price variance of $27.5k due to using a higher quality material. Direct labor had an unfavorable rate variance of $8.1k due to bonus payments. Variable overhead had an unfavorable spending variance of $7k due to higher actual rates.

Uploaded by

Lara Lewis Achilles
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Sales Budget

Q1
Expected unit sales
Unit selling price
Total sales

54,000
100
5,400,000

Q2
54,000
###
5,400,000

Production Budget
Q1
54,000
54,000

Q2
54,000
###
###
54,000

54,000
6
324,000
324,000
324,000
8
2,592,000

Q2
54,000
###
324,000
###
324,000
324,000
###
2,592,000

Expected sales (units)


Desired ending finished goods units
Beginning Inventory
Required Production (units)
Direct Materials Budget
Q1
Units to be produced
Direct materials per unit
Total Pounds needed for Production
Add: Desired ending direct materials
Total materials required
Less: Beginning direct materials
Direct materials purchases
Cost per pound
Total direct materials purchases
Direct Labor Budget
Q1
Units to be produced
Direct labor (hours) per unit
Total required direct labor hours
Direct labor cost per hour
Total direct labor cost

54,000
0.50
27,000
16
432,000

Q2
54,000
###
27,000
###
432,000

Overhead Budget
Q1
UNITS
Rate
Total Overhead
Budgeted Income Statement
Sales
Cost of goods sold
Gross profit

54,000
18
972,000

Q2
54,000
###
972,000

(assumptions: selling expenses is 3 % of sales and a


Q1
Q2
5,400,000
5,400,000
2,592,000
2,592,000
2,808,000
2,808,000

Operating expenses:
Selling expenses
Administrative expenses
Total operating expenses
Income before income taxes
Income tax expense
Net income

162,000
270,000
432,000
2,376,000
475,200
1,900,800

162,000
270,000
432,000
2,376,000
475,200
1,900,800

Direct Materials Flexible Budgets


Units to be produced
Direct materials per unit
Total Pounds needed for Production
Cost per pound
Total direct materials

Level 1
18,000
6
108,000
8
864,000

Level 2
20,000
6
120,000
###
960,000

Level 1
18,000
0.5
9,000
16
144,000

Level 2
20,000
0.5
10,000
16
160,000

Level 1
18,000
18
324,000

Level 2
20,000
18
360,000

Direct Labor Flexible Budgets


Units to be produced
Direct labor (hours) per unit
Total required direct labor hours
Direct labor cost per hour
Total direct labor cost
Overhead Flexible Budgets
Units to be produced
X Rate per unit
Total Overhead
Responsibility Report
Flexible budget
20,000
960,000
160,000
360,000

Units of production
Direct materials
Direct Labor
Overhead

Actual
###
907,500
152,100
330,000

Direct materials
AQ
AP
220000
8.25
1815000

AQ

SP
220000
8
1760000
55,000 Unfavorable

AQ
AP
110000
8.25
907500

AQ

SP
110000
8
880000
27,500 Unfavorable

AQ

SP
110000
880000

8
(80,000)

Direct labor
AH
9,000

AR
16.9
152,100

AH

SR
9,000

16
144,000

8,100
Unfavorable rate variance
Variable overhead
Actual variable overhead

AH

SR
9,000

160,000

17
153,000

7,000
Unfavorable variable spending variance
Fixed overhead
Actual fixed overhead
170,000

Budgeted fixed
171,000

(1,000)
Favorable fixed spending variance

Q3
54,000
100
5,400,000

Q4
54,000
###
5,400,000

Total
216,000
100
21,600,000

Q4
54,000
54,000

Total
216,000
216,000

Q3
54,000
6
324,000
324,000
324,000
8
2,592,000

Q4
54,000
###
324,000
324,000
324,000
###
2,592,000

Total
216,000
6
1,296,000
1,296,000
1,296,000
8
10,368,000

Q3
54,000
0.50
27,000
16
432,000

Q4
54,000
###
27,000
###
432,000

Total
216,000
0.50
108,000
16
1,728,000

Q3
54,000
18
972,000

Q4
54,000
###
972,000

Total
216,000
18
3,888,000

Q3
54,000
###
54,000

expenses is 3 % of sales and administrative


Q3
Q4
5,400,000
5,400,000
2,592,000
2,592,000
2,808,000
2,808,000

expenses is 5 % of sales)
Total
21,600,000
10,368,000
11,232,000

162,000
270,000
432,000
2,376,000
475,200
1,900,800

162,000
270,000
432,000
2,376,000
475,200
1,900,800

648,000
1,080,000
1,728,000
9,504,000
1,900,800
7,603,200

Level 3
24,000
6
144,000
8
1,152,000

Level 3
24,000
0.5
12,000
16
192,000

Level 3
24,000
18
432,000

Total Variance
52,500 F
7900 F
30000 F

Difference
Quantity
80,000 F
16,000 F
19,000 F

Price
27,500 U
8,100 UF
11,000 F

Price variance at point of purchase

There is a favorable total variance for m


the use of a new material which is uniq
The company used a more expensive m
increase sales and greater customer loy

total quantity used. However, if we bas


be $ 55,000 unfavorable. The materials
was 20,000 units. At standard, the tota
actual materials used is only 110,000 s
Price variance at actual materials used
SQ
SP
120000
8
960000
(80,000) favorable quantity variance

SH
10,000

SR

SH
10,000

SR

SH
10,000

SR

16
160,000
(16,000)
Favorable efficiency variance

17
170,000
(17,000)
Favorable efficiency variance

19
190,000
(19,000)
Favorable volume variance

There is a favorable total variance for d


is $ 160,000 but the actual labor cost is
an unfavorable labor variance due to hi
exceeding normal production volumes.
efficiency variance because the actual
standard. Producing 20,000 units shoul
only used 9,000 hours.

The total overhead variance is $ 30,000


$ 360,000 as compared to actual overh
overhead is only $ 170,000. There is als
is budgeted only for 18,000 units but a
Variable overhead spending variance is
efficiency variance is $ 17,000 favorab
9,000 hours.

vorable total variance for materials. There is an unfavorable price variance due to
new material which is unique and high quality fabric that Miss Gloria Cateneze.
y used a more expensive material which could increase the quality of the product,
es and greater customer loyalty. The unfavorable price variance is $ 27,500 based on

y used. However, if we base it on the total materials purchased, the price variance would
unfavorable. The materials quantity variance is $ 80,000 favorable. The total units produced
units. At standard, the total materials to be used should be 120,000 square yards. However, the
rials used is only 110,000 square yards.

vorable total variance for direct labor. This is because the flexible budget for labor at 20,000 units
but the actual labor cost is only $ 152,100. The labor rate variance is $ 8,100 unfavorable. There is
ble labor variance due to higher average per hour labor because of bonuses paid to the workers for
ormal production volumes. The direct labor efficiency variance is $ $ 16,000 favorable. There is a favorable
ariance because the actual number of hours used is lesser than the number of hours that should be used at
oducing 20,000 units should have required 10,000 hours to produce at standards. During May, the company
000 hours.

erhead variance is $ 30,000 favorable. This is a result of a higher flexible budget for variable overhead costs
s compared to actual overhead costs of only $ 330,000. Budgeted fixed costs is $ 171,000 but the actual fixed
only $ 170,000. There is also a difference on the fixed costs because of the volume variance. The fixed overhea
only for 18,000 units but actual production is 20,000 units. This is called volume variance which is an unctrollab
rhead spending variance is $7,000 unfavorable. This is due to a higher actual rate per hour for variable overhea
ariance is $ 17,000 favorable. The standard requires 10,000 hours to produce 20,000 units but the company act

e. There is
orkers for
ere is a favorable
should be used at
May, the company

ble overhead costs


0 but the actual fixed
nce. The fixed overhead
which is an unctrollable variance.
ur for variable overhead. The variable
s but the company actually used only

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