Question

Boyce Manufacturing Co.'s operates 3 profit centers. The clothing center’s static budget at 6,000 units of production includes $30,000 for direct labor, $6,000 for direct materials, $12,000 for variable factory overhead, and controllable fixed costs of $24,000. Actual activity was 5,800 units with actual costs of $29,500 for direct labor, $11,500 for variable factory overhead, controllable fixed costs of $24,200, and $6,100 for direct materials. All units produced were budgeted to be sold for $16 each. Actual sales totaled $93,960. What variance will appear on the performance report for controllable margin?
Choose an answer:

A. 760F
B. 260F
C. 1,100F
D. 900U

Answer 1

Answer:

D. 900 U

Explanation:

When variance will be calculated and shown on performance report it will be, for entire cost incurred.

For all costs directly related to production that is variable cost, standard will be adjusted based on actual quantity produced, whereas standard fixed cost will not be adjusted based on quantity of units produced as is fixed in nature.

1. Standard Direct labor for actual production = $\frac{30,000}{6,000} \times 5,800 = 29,000$

Actual expense of direct labor = $29,500

Variance = Standard - Actual = $29,000 - $29,500 = $500 U

2. Standard Direct Materials = $\frac{6,000}{6,000} \times 5,800 = 5,800$

Actual direct material cost = $6,100

Variance = Standard - Actual = $5,800 - $6,100 = $300 U

3. Standard Variable Factory Overhead = $\frac{12,000}{6,000} \times 5,800 = 11,600$

Actual variable factory overhead = $11,500

Variance = Standard - Actual = $11,600 - $11,500 = $100 F

4. Fixed Cost Variance = Standard - Actual = $24,000 - $24,200 =

$200 U

Total Variance in Performance Report

Every F has positive value and every U has negative Value

= - 500 - 300 + 100 - 200 = - 900

That is 900 U

Answer 2

Answer:

The correct option is B) 260 F

Explanation:

We can take out controllable margin by subtracting cost F from Sales F,

SALES F - COST F

Taking out SALES F -

Actual sales - Budget sales

where actual sales given - $93,960

budget sales - 5800 units X $16

                      = $92,800

SALES F = $93,960 - $92,800

               = $1160 F

Taking out COST F -

Actual cost - Budget cost

Here cost includes -        

Direct material =     ACTUAL - BUDGETED

Where actual is given - $6100

and budgeted can be taken out as - $6000 / 6000 x actual units

                       = $1 x 5800

                        = $5800

NOTE* here we have divided the given budgeted $6000 by given budgeted units of production which is 6000 units.

Direct material cost = $6100 - $5800

                                 = $300 U

Direct labor = ACTUAL - BUDGETED

Where actual is given - $29,500

and budgeted can be taken out as - $30,000/ 6000 x actual units

                                                         = $5 x 5800

                                                         = $29,000

Direct material cost = $29,500 - $29,000

                                 = 500 U

Variable factory overhead = ACTUAL - BUDGETED

Where actual is given - $11,500

and budgeted can be taken out as - $12,000/ 6000 x actual units

                                                   = $2 x 5800

                                                   = $11,600

Variable factory overhead cost = $11,500 - $11,600

                                                    = 100 F

Controllable fixed cost = ACTUAL - BUDGETED

Where actual is given - $24,200

and budgeted is given as $24,000

Controllable fixed cost = $24,200  - $24,000

                                       = 200 U

now adding together all of the four cost =

300 U + 500 U + 100 F + 200 U

= 900 U

CONTRIBUTION MARGIN = SALES - COST

                                            = 1160 F - 900 U

                                            = 260 F