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exteesy07 exteesy07
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1 months ago
Chillcott Manufacturing produces ceiling fans. A master budget was prepared by the controller based on sales of 19,500 fans for the month of May. The budgeted income statement for the period follows:

Budgeted Income Statement
Revenue​$3,120,000
Variable expenses​​
Direct materials$877,500​
Direct labor390,000​
Variable overhead585,000​
Total variable expenses​1,852,500
Contribution margin​1,267,500
Fixed overhead325,000​
Fixed selling and administrative expenses650,000​
Total fixed expenses​    975,000
Operating income​$   292,500

During May, Chillcott produced and sold 23,400 fans and had the following actual results:

Actual Income Statement
Revenue​$3,731,000
Variable expenses​​
Direct materials$1,037,400​
Direct labor487,500​
Variable overhead   715,000​
Total variable expenses​2,239,900
Contribution margin​1,491,100
Fixed overhead351,000​
Fixed selling and administrative expenses 650,000​
Total fixed expenses​1,001,000
Operating income​$   490,100

Required:

a.Prepare a flexible budget for May.
b.Calculate Chillcott's static budget variance for May.
c.Will the static budget variance that you calculated in part (b) be useful to
management?
Why or why not?
d.Based on the available information, prepare a performance report for management.
e.Comment on the results of your report.
Textbook 
Managerial Accounting

Managerial Accounting


Edition: 4th
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avi420avi420
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More solutions for this book are available here
a.Direct materials = $877,000 ÷ 19,500 fans = $45
Direct labor = $390,000 ÷ 19,500 fans = $20
Variable overhead = $585,000 ÷ 19,500 fans = $30

​​Per Unit23,400 fans
Revenue$160.00$3,744,000
Less variable expenses:​​
  Direct material45.001,053,000
  Direct labor20.00468,000
  Variable overhead  30.00   702,000
Total variable expenses  95.002,223,000
Contribution margin$  65.001,521,000
Less fixed expenses:​​
  Overhead​325,000
  Selling and administrative​   650,000
Total fixed expenses​   975,000
Operating income​$   546,000

b.
​​ActualStatic Budget
​ResultsVarianceStatic Budget
Unit Sales 23,4003,900 F19,500
Revenue$3,731,000$611,000 F$3,120,000
Less variable expenses:​​​
  Direct material1,037,400159,900 U877,500
  Direct labor487,50097,500 U390,000
  Overhead   715,000130,000 U   585,000
Total variable expenses2,239,900387,400 U1,852,500
Contribution margin1,491,100223,600 F1,267,500
Less fixed expenses​​​
  Overhead351,00026,000 U325,000
  Selling and administrative   650,000            0   650,000
Total fixed expenses 1,001,000   26,000 U   975,000
Operating income $   490,100$  197,600 F $  292,500

c.No, the static budget variance is of little use to managers. It is impossible to determine
from the static budget variance whether the variances are due to changes in prices or changes in volume.

d.



e.The flexible budget suggests that if budget objectives had been met with higher sales,
the operating income should have been $546,000. In fact, operating income was only $490,100. It appears that the average sales price had to be reduced to sell more units. While direct materials costs came in under budget, direct labor and variable overhead costs exceeded budget. Perhaps overtime was worked or lesser skilled workers had to be hired to achieve the higher level of production/sales. Management needs to identify why costs increased to be able to anticipate future results.

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exteesy07 Author
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1 months ago
Good timing, thanks!
alpheratz
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Yesterday
This helped my grade so much Perfect
fgarza2146
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2 hours ago
Correct Slight Smile TY
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