Question 23.6: Pacific Company provides the following information about its...
Pacific Company provides the following information about its budgeted and actual results for June 2019.
Although the expected June volume was 25,000 units produced and sold, the company actually produced and sold 27,000 units, as detailed here.
Required
1. Prepare June flexible budgets showing expected sales, costs, and net income assuming 20,000, 25,000, and 30,000 units of output produced and sold.
2. Prepare a flexible budget performance report that compares actual results with the amounts budgeted if the actual volume of 27,000 units had been expected.
3. Apply variance analysis for direct materials and direct labor.
4. Compute the total overhead variance and the overhead controllable and overhead volume variances.
5. Compute spending and efficiency variances for overhead. (Refer to Appendix 23A.)
6. Prepare journal entries to record standard costs, and price and quantity variances, for direct materials, direct labor, and factory overhead. (Refer to Appendix 23A.)
| Budget (25,000 units) | Actual (27,000 units | |
| Selling price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | $5.00 per unit | $141,210 |
| Variable costs (per unit) | ||
| Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 1 .24 per unit | $30,800 |
| Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 1 .50 per unit | 37,800 |
| Factory supplies* . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 0 .25 per unit | 9,990 |
| Utilities* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 0 .50 per unit | 16,200 |
| Selling costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 0 .40 per unit | 9,180 |
| Fixed costs (per month) | ||
| Depreciation—Machinery* . . . . . . . . . . . . . . . . . . . . . | $3,750 | $3,710 |
| Depreciation—Factory building* . . . . . . . . . . . . . . . . | 2,500 | 2,500 |
| General liability insurance . . . . . . . . . . . . . . . . . . . . . | 1,200 | 1,250 |
| Property taxes on office equipment . . . . . . . . . . . . . | 500 | 485 |
| Other administrative expense . . . . . . . . . . . . . . . . . . | 750 | 900 |
*Indicates factory overhead item; $0.75 per unit or $3 per direct labor hour for variable overhead, and $0.25 per unit or $1 per direct labor hour for fixed overhead.
Standard costs based on expected output of 25,000 units.
| Standard Quantity | Total Cost | |
| Direct materials, 4 oz . per unit @ $0 .31 per oz . . . . . . . . . . | 100,000 oz . | $31,000 |
| Direct labor, 0 .25 hr . per unit @ $6 .00 per hr . . . . . . . . . . | 6,250 hrs . | 37,500 |
| Overhead, 6,250 standard hours × $4 .00 per DLH . . . . . . . | 25,000 |
Actual costs incurred to produce 27,000 units.
| Actual Quantity | Total Cost | |
| Direct materials, 110,000 oz . @ $0 .28 per oz . . . . . . . . . . . . . . . . | 110,000 oz . | $30,800 |
| Direct labor, 5,400 hrs . @ $7 .00 per hr . . . . . . . . . . . . . . . . . . . | 5,400 hrs . | 37,800 |
| Overhead ($9,990 + $16,200 + $3,710 + $2,500) . . . . . . . . . . . . . . | 32,400 |
