Heffle manufactures tennis rackets and uses a standard costing system. The master budget income statement for April was
Posted: Wed Apr 27, 2022 11:30 am
Heffle manufactures tennis rackets and uses a standard costing
system. The master budget income statement for April was
based on the expectation of producing 20,000 units and selling
16,800 units. The budgeted sales price was $38 per unit,
and total budgeted fixed selling and administrative costs were
$170,200. There are no variable selling and
administrative costs in this firm. Standard
manufacturing costs used in determining costs under the master
budget are listed below in Exhibit A.
Exhibit A*
__________________________________________________________________
Per Racket
Raw material:
Frame: 1.02 frames at $8.00 per frame
$ 8.16
Stringing materials: 22 feet at
$0.13 per foot
2.86
Direct labor: 0.3 hours at $14.40 per hour
4.32
Variable overhead
3.66
Fixed overhead
5.00
Total standard cost per tennis
racket
$24.00
__________________________________________________________________
*Standard costs are calculated for a production volume
(denominator level of activity) of 25,000 units each month.
The company actually sold 24,500 units in April. The
accountants determined that the actual profits in April were
$162,167. The income statement is provided in Exhibit
B.
Exhibit
B
_______________________________________________________________
Heffle Inc.
Income Statement for April
Actual
Sales:
24,500 rackets at $39.10
$957,950
Standard cost of goods sold:
24,500 rackets at $24.00
588,000
Unfavorable Material
variance
12,830
Unfavorable Labor
variance
4,873
Unfavorable Variable
Overhead variance
6,180
Unfavorable Fixed Overhead
variance
18,900
Cost of goods sold after adjustment for
variances
630,783
Gross Margin
327,167
Selling and administrative expense
165,000
Operating profit
$ 162,167
______________________________________________________________
Actual production data for April is given in Exhibit C.
Exhibit
C
_______________________________________________________________
Direct materials purchased and used:
Stringing materials
512,000 feet at $0.11 per foot
Frames
23,000 frames at $8.65 per frame
Labor: ($14.65 per hour)
6,820 hours
Overhead:
Variable
$ 86,700
Fixed
$128,900
Production
22,000 rackets
________________________________________________________________
The manager of the company is unable to explain why the
accountant’s profits are different from the amount of profits
according to the flexible budget income statement.
Required:
1. Prepare a very detailed
manufacturing cost variance analysis (e.g., calculate price,
efficiency, spending, and production volume
variances.) An analysis should be done for each type of
direct material (ie., string and frames should be examined
separately). In addition an analysis should be done for
direct labor and for fixed manufacturing overhead. Do
not do a variance analysis for variable overhead costs since
no allocation base is given. All variances should be
marked with either an “F” for favorable or “U” for
unfavorable. Prepare the analysis using an appropriate
format covered in class.
system. The master budget income statement for April was
based on the expectation of producing 20,000 units and selling
16,800 units. The budgeted sales price was $38 per unit,
and total budgeted fixed selling and administrative costs were
$170,200. There are no variable selling and
administrative costs in this firm. Standard
manufacturing costs used in determining costs under the master
budget are listed below in Exhibit A.
Exhibit A*
__________________________________________________________________
Per Racket
Raw material:
Frame: 1.02 frames at $8.00 per frame
$ 8.16
Stringing materials: 22 feet at
$0.13 per foot
2.86
Direct labor: 0.3 hours at $14.40 per hour
4.32
Variable overhead
3.66
Fixed overhead
5.00
Total standard cost per tennis
racket
$24.00
__________________________________________________________________
*Standard costs are calculated for a production volume
(denominator level of activity) of 25,000 units each month.
The company actually sold 24,500 units in April. The
accountants determined that the actual profits in April were
$162,167. The income statement is provided in Exhibit
B.
Exhibit
B
_______________________________________________________________
Heffle Inc.
Income Statement for April
Actual
Sales:
24,500 rackets at $39.10
$957,950
Standard cost of goods sold:
24,500 rackets at $24.00
588,000
Unfavorable Material
variance
12,830
Unfavorable Labor
variance
4,873
Unfavorable Variable
Overhead variance
6,180
Unfavorable Fixed Overhead
variance
18,900
Cost of goods sold after adjustment for
variances
630,783
Gross Margin
327,167
Selling and administrative expense
165,000
Operating profit
$ 162,167
______________________________________________________________
Actual production data for April is given in Exhibit C.
Exhibit
C
_______________________________________________________________
Direct materials purchased and used:
Stringing materials
512,000 feet at $0.11 per foot
Frames
23,000 frames at $8.65 per frame
Labor: ($14.65 per hour)
6,820 hours
Overhead:
Variable
$ 86,700
Fixed
$128,900
Production
22,000 rackets
________________________________________________________________
The manager of the company is unable to explain why the
accountant’s profits are different from the amount of profits
according to the flexible budget income statement.
Required:
1. Prepare a very detailed
manufacturing cost variance analysis (e.g., calculate price,
efficiency, spending, and production volume
variances.) An analysis should be done for each type of
direct material (ie., string and frames should be examined
separately). In addition an analysis should be done for
direct labor and for fixed manufacturing overhead. Do
not do a variance analysis for variable overhead costs since
no allocation base is given. All variances should be
marked with either an “F” for favorable or “U” for
unfavorable. Prepare the analysis using an appropriate
format covered in class.