Question 3. Flexible Budgets - Chapter 7 (12 marks)
Solution Systems assembles personal computers (PCs) and uses flexible budgeting and a
standard costs system. Solution Systems allocates overhead based on the number of direct
material parts. The company's performance report includes the following selected data:
Static Budget
20,000 PCs
Actual Results
22,000 PCs
Sales [20,000 units @ $400/unit]
[22,000 units @ $420/unit]
Variable Manufacturing expenses:
$8,000,000
$9,240,000
Direct materials [200,000 parts @$10/part]
2,000,000
[214,200 parts @ $9.80/part]
2,099,160
Direct labour [40,000 hours @ $14.00/hr]
560,000
Direct labour [42,500 hours @ $14.60/hr]
620,500
Variable overhead [200,000 parts @ $4.00/part]
800,000
Variable overhead [214,200 parts @ $4.10/part]
878,220
Fixed manufacturing expenses:
Fixed overhead
Total Cost of Goods Sold
Gross profit
900,000
930,000
4,260,000
$3,740,000
4,527,880
$4,712,120
Required:
1. Determine the company's standard cost for one unit.
2. Prepare a flexible budget based on the actual number of PCs sold.
**
3. Compute the price variance for direct materials and direct labour.
4. Compute the efficiency variances for direct materials and direct labour.
**
5. Have Solution System's managers done a good job or a poor job controlling
material and labour costs? Why?
** Note: Make sure you label the calculated variances as "Favourable" with an F, or
"Unfavourable" with a U.