Question

Rooney 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	21,000 kits					22,800 kits
Direct materials		$	136,500				$	185,200
Direct labor			115,500					118,200
Variable manufacturing overhead			31,500					37,700
Total variable costs			283,500					341,100
Fixed manufacturing overhead			208,000					202,800
Total manufacturing cost		$	491,500				$	543,900

Required

a. Convert the static budget into a flexible budget.

b. Calculate the variances.

	Flexible Budget
Production in units	22,800	Kits
Direct materials
Direct labor
Variable manufacturing overhead
Total variable costs	$0
Fixed manufacturing overhead
Total manufacturing costs	$0

Calculate the variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

	Variances
Direct materials
Direct labor
Variable manufacturing overhead
Total variable costs
Fixed manufacturing overhead
Total manufacturing costs

Answer 1

				Flexible budget
Production in units				22800	Kits
Direct materials				148200
Direct labor				125400
Variable manufacturing overhead				34200
total variable costs				307800
fixed manufacturing overhead				208,000
total manufacturing costs				515800
Flexible budget variable cost = variable cost/21000*22800
				Variances
Direct materials				37000	U
Direct labor				7200	F
Variable manufacturing overhead				3500	U
total variable costs				33300	U
fixed manufacturing overhead				5,200	F
total manufacturing costs				28100	U
Variance = actual - Flexible