Question

Pressure Reducers, Inc. produces and sells lumbar support cushions for office chairs using a special foam that molds to a person’s back. Since all products are made to order, the only inventory the company maintains is raw materials. Thus, all costs of production are recognized in the period in which they are incurred. The following annual performance report was prepared from the company’s accounting records:


The following fixed costs are included in these amounts.


Hank Martinez, Pressure Reducers’ CFO, used the following standard cost card in preparing the budget and thought he had done a good job estimating production and sales. He wonders why the variable cost of goods sold deviated from that budget.


Actual variable costs incurred during the year were as follows.



Required
a. Prepare a performance report that isolates Pressure Reducers’ flexible budget and sales volume variances.
b. Calculate the direct materials price and quantity variances.
c. Calculate the direct labor rate and efficiency variances.
d. Calculate the variable overhead spending and efficiency variances.
e. Show that the sum of direct materials, direct labor, and variable overhead variances equals the flexible budget variance for variable cost of goods sold in part (a).
f. Prepare a memo to Hank Martinez explaining why the actual variable cost of goods sold differed from the budgetedamount.


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  • CreatedFebruary 21, 2014
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