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Horngren'S Financial And Managerial Accounting
Found in: Page 1309

Short Answer

Office Plus sells its main product, ergonomic mouse pads, for $13 each. Its variable cost is $5.10 per pad. Fixed costs are $205,000 per month for volumes up to 65,000 pads. Above 65,000 pads, monthly fixed costs are $250,000. Prepare a monthly flexible budget for the product, showing sales revenue, variable costs, fixed costs, and operating income for volume levels of 45,000, 55,000, and 75,000 pads.

The flexible budget for office plus is prepared with volume levels of 45,000, 55,000 and 75,000 pads.

See the step by step solution

Step by Step Solution

Step 1: Definition of flexible budget

A flexible budget is a budget prepared by the company's management that adjusts with any variations in the the activity.

Step 2: Preparation of flexible budget

Flexible Budget


Per unit ($)

45,000 ($)

55,000 ($)

75,000 ($)

  1. Sales





  1. Variable cost





  1. Contribution Margin





  1. Fixed Cost




  1. Income/(loss) (C – D)




Most popular questions for Business-studies Textbooks

Computing and journalizing standard cost variances

Middleton manufactures coffee mugs that it sells to other companies for customizing with their own logos. Middleton prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost of a coffee mug is based on static budget volume of 59,800 coffee mugs per month:

Direct Materials (0.2 lbs. @ $0.25 per lb.) $ 0.05

Direct Labor (3 minutes @ $0.14 per minute) 0.42

Manufacturing Overhead:

Variable (3 minutes @ $0.06 per minute) $ 0.18

Fixed (3 minutes @ $0.13 per minute) 0.39 0.57

Total Cost per Coffee Mug $ 1.04

Actual cost and production information for July 2018 follows:

a. There were no beginning or ending inventory balances. All expenditures were on account.

b. Actual production and sales were 62,500 coffee mugs.

c. Actual direct materials usage was 11,000 lbs. at an actual cost of $0.17 per lb.

d. Actual direct labor usage of 197,000 minutes at a cost of $33,490.

e. Actual overhead cost was $10,835 variable and $29,965 fixed.

f. Selling and administrative costs were $130,000.


1. Compute the cost and efficiency variances for direct materials and direct labor.

2. Journalize the purchase and usage of direct materials and the assignment of direct

labor, including the related variances.

3. For manufacturing overhead, compute the variable overhead cost and efficiency variances and the fixed overhead cost and volume variances.

4. Journalize the actual manufacturing overhead and the allocated manufacturing overhead. Journalize the movement of all production from Work in Process Inventory. Journalize the adjusting of the Manufacturing Overhead account.

5. Middleton intentionally hired more highly skilled workers during July. How did this decision affect the cost variances? Overall, was the decision wise?


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