Question

Zachary Medical Equipment Company makes a blood pressure measuring kit. Jason McCoy is the production manager. The production department’s static budget and actual results for 2019 follow:

	Static Budget					Actual Results
Production in units	40,000 kits					41,000 kits
Direct materials		$	256,000				$	300,000
Direct labor			216,000					215,200
Variable manufacturing overhead			60,000					64,000
Total variable costs			532,000					579,200
Fixed manufacturing overhead			205,000					199,800
Total manufacturing cost		$	737,000				$	779,000

Required

a. Convert the static budget into a flexible budget.

b. Calculate the variances.

Answer 1

	Static Budget	Flexible Budget	Actual Results
Production in units	40,000	41,000	41,000
Direct materials	256,000	262,400	300,000
Direct labor	216,000	221,400	215,200
Variable manufacturing overhead	60,000	61,500	64,000
Total variable costs	532,000	545,300	579,200
Fixed manufacturing overhead	205,000	205,000	199,800
Total manufacturing cost	737,000	750,300	779,000
Variance with Flexible budget	Flexible Budget	Actual Results	Variance
Production in units	41000	41000
Direct materials	262400	300000	37600	U
Direct labor	221400	215200	-6200	F
Variable manufacturing overhead	61500	64000	2500	U
Total variable costs	545300	579200	33900	U
Fixed manufacturing overhead	205000	199800	-5200	F
Total manufacturing cost	750300	779000	28700	U