Author Question: Failure to record the adjusting entry for depreciation results in assets and owner's equity being ... (Read 107 times)

magmichele12 · **on:** Jul 6, 2018

Failure to record the adjusting entry for depreciation results in assets and owner's equity being overstated on the balance sheet.
Indicate whether the statement is true or false

Question 2

Flexible budget, direct materials and direct manufacturing labor variances.

Milan Statuary manufactures bust statues of famous historical figures. All statues are the same size. Each unit requires the same amount of resources. The following information is from the static budget for 2014:

Standard quantities, standard prices, and standard unit costs follow for direct materials and direct manufacturing labor:

During 2014, actual number of units produced and sold was 5,100, at an average selling price of 730. Actual cost of direct materials used was 1,149,400, based on 70,000 pounds purchased at 16.42 per pound. Direct manufacturing labor-hours actually used were 17,000, at the rate of 33.70 per hour. As a result, actual direct manufacturing labor costs were 572,900. Actual fixed costs were 1,200,000. There were no beginning or ending inventories.

Required:
1. Calculate the sales-volume variance and flexible-budget variance for operating income.
2. Compute price and efficiency variances for direct materials and direct manufacturing labor.

JYan · **Reply #1 on:** Jul 6, 2018

Answer to Question 1

T

Answer to Question 2

1. Variance Analysis for Milan Statuary for 2014

Flexible- Sales-
Actual Budget Flexible Volume Static
Results Variances Budget Variances Budget
(1) (2) = (1) (3) (3) (4) = (3) (5) (5)
Units sold 5,100a 0 5,100 1,000 U 6,100a
Revenues 3,723,000b 153,000 F 3,570,000c 700,000 U 4,270,000d

Direct materials 1,149,400 7,000 U 1,142,400e 224,000 F 1,366,400f
Direct manufacturing labor 572,900a 8,500 F 581,400g 114,000 F 695,400h
Fixed costs 1,200,000a 150,000 F 1,350,000a 0 1,350,000a
Total costs 2,922,300 151,500 F 3,073,800 338,000 F 3,411,800
Operating income 800,700 304,500 F 496,200 362,000 U 858,200

304,500 F 362,000 U
Flexible-budget variance Sales-volume variance
57,500 U
Static-budget variance
a Given
b 730/unit 5,100 units = 3,723,000
c 700/unit 5,100 units = 3,570,000
d 700/unit 6,100 units = 4,270,000
e 224/unit 5,100 units = 1,142,400
f 224/unit 6,100 units = 1,366,400
g 114/unit 5,100 units = 581,400
h 114/unit 6,100 units = 695,400

2. Flexible Budget
(Budgeted Input
Actual Incurred Qty. Allowed for
(Actual Input Qty. Actual Input Qty. Actual Output
Actual Price) Budgeted Price Budgeted Price)

Direct materials 1,149,400a 980,000b 1,142,400c

169,400 U 162,400 F
Price variance Efficiency variance
7,000 U
Flexible-budget variance

Direct manufacturing labor 572,900d 510,000e 581,400f

62,900 U 71,400 F
Price variance Efficiency variance
8,500 F
Flexible-budget variance
a 70,000 pounds 16.42/pound = 1,149,400
b 70,000 pounds 14/pound = 980,000
c 5,100 statues 16 pounds/statue 14/pound = 81,600 pounds 14/pound = 1,142,400
d 17,000 hours 33.70/hour = 572,900
e 17,000 hours 30/hour = 510,000
f 5,100 statues 3.8 hours/statue 30/hour = 19,380 hours 30/hour = 581,400