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Horngren'S Financial And Managerial Accounting
Found in: Page 1306

Short Answer

Preparing flexible budgets

Moje, Inc. manufactures travel locks. The budgeted selling price is $19 per lock, thevariable cost is $9 per lock, and budgeted fixed costs are $13,000 per month. Prepare aflexible budget for output levels of 4,000 locks and 11,000 locks for the month endedApril 30, 2018.

The flexible budget of a company shows $27,000 operating income for 4,000 units and $97,000 operating income for 11,000 units for the month ended April 30, 2018.

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Step by Step Solution

 Step 1:Explanation on flexible budget

A flexible budget is a budget that adjusts to the volume or activity levels of an organisation. The flexible budget can be utilized for the determination of budgeted expenses, sales, and profits at different levels of activity.

Step 2: Flexible budget

Moje, Inc.

Flexible Budget

For the month of April 30, 2018

Units

4,000

11,000

Sales Revenue @$19

$76,000

$209,000

Less:VariableCost @$9

($36,000)

($99,000)

Contribution margin

$40,000

$110,000

Less: Fixed cost

($13,000)

($13,000)

Operating Income

$27,000

$97,000

Most popular questions for Business-studies Textbooks

Computing and journalizing standard cost variances

Moss manufactures coffee mugs that it sells to other companies for customizing with their own logos. Moss 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 material (0.2 lbs. @$0.25 per lb)

$0.05

Direct Labor (3 minutes @ $0.11 per minute)

0.33

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

$0.95

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 was 197,000 minutes at a total cost of $25,610.

e. Actual overhead cost was $10,835 variable and $29,765 fixed.

f. Selling and administrative costs were $95,000.

Requirements

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 costs from Work­-in­-Process Inventory. Journalize the adjusting of the Manufacturing Overhead account.

5. Moss 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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