Part 1 Cost variance analysis

Gourmet, Inc. produces containers of frozen food. During October the company had the following
actual production and costs.

Actual
Containers produced in October 725

Variable
Overhead $5,500

Fixed
Overhead $14,000

Direct
Labor cost $75,600
Which is 4,000 Direct labor hours

Actual
material purchased $33,000
Which is 15,000 pounds

Actual
Material pounds used 14,900 pounds

Overhead is budgeted and applied using direct-labor
hours. Standard cost and annual budget
information are as follows:

Standard
cost per container

Direct
Labor 5 hours at $18 $90

Direct
Material 20 poundsat $2 $40

Variable
overhead 5 Direct labor hours at $1.50
$7.50

Fixed
Overhead 5 Direct labor hours at $3
$15

Total $152.50

Budgeted
Monthly Fixed Overhead $12,500

Required: Make sure
you do not forget to label the variances U or F. You need to show your work either by cell
reference or showing your calculation to the side.

1. Calculate the direct materials price and quantity
variance.

Materials price variance

Materials Quantity variance

2. Calculate the
direct labor rate and efficiency variances.

Labor rate variance

Labor Efficiency variance

3. Calculate the
variable overhead spending and efficiency variances.

Variable overhead spending variance

Variable overhead efficiency variance

4. Calculate the
fixed overhead budget variance.

Fixed overhead budget variance

5. Pick out the two
variances that you computed above that you think should be further
investigated. Explain why you picked
these 2 variances and what might be the possible cause of the variances.

Problem
2 Performance reporting

Crafts Inc., is a manufacturer of furniture.

The company has 2 responsibility centers: Production and Selling and Distribution.

Production and administration are cost centers while Selling
and Distribution is a profit center.

Presented below are the budgeted and actual contribution
income statement for October along with applicable unit information.

Budgeted unit information:

Units 900

Sale price per unit $250

Direct material per unit$50

Direct labor per unit $20

Variable manufacturing overhead per unit $15

Variable selling and distribution per unit 60

Actual Units:
1,000

Craft
Inc.

Budgeted
Contribution Income Statement

For
Month of October

Sales $2,25,000

Less Variable costs

Variable cost of goods sold:

Direct
materials $45,000

Direct
labor 18,000

Manufacturing
overhead 13,500 $76,500

Selling and distribution 54,000 (1,30,500)

Contribution Margin
94,500

Less Fixed Costs:

Manufacturing
overhead
40,000

Selling
and Distribution 30,000 (70,000)

Net Income
24,500

Craft
Inc.

Actual
Contribution Income Statement

For
Month of October

Sales $2,75,000

Less Variable costs

Variable cost of goods sold:

Direct
materials $50,000

Direct
labor 25,000

Manufacturing
overhead 20,000 $95,000

Selling and distribution 88,000 (1,83,000)

Contribution Margin
92,000

Less Fixed Costs:

Manufacturing
overhead
38,000

Selling
and Distribution 40,000 (78,000)

Net Income(Loss)
14,000

Required:

1. Prepare a flexible
budget performance report for Production that compares actual and allowed
costs.

2. Prepare a flexible
budget performance report for selling and distribution that compares actual and
allowed costs.

3. Determine the
revenue variance.

4. Determine the
sales price variance.

5. Determine the
sales volume variance.

6. Explain to
management the areas that should be investigated. You should also include why the actual income
is less than budgeted Explain why you picked these areas to look at.

1. Prepare a flexible
budget performance report for Production that compares actual and allowed
costs.

Production
Department

Flexible
Budget Performance Report

For
Month of October

Actual
costs Flexible Budget Cost Flexible Budget Variances Designation U or F

2. Prepare a flexible
budget performance report for selling and distribution that compares actual and
allowed costs.

Selling
and Distribution Cost Center

Flexible
Budget Performance Report

For
Month of October

Actual
costs Flexible Budget Cost Flexible Budget Variances Designation U or F

3. Determine the
revenue variance.

4. Determine the
sales price variance.

5. Determine the
sales volume variance.

6. Explain to
management the areas that should be investigated. You should also include why the actual income
is less than budgeted Explain why you picked these areas to look at.