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Flexible Budgeting and Standard Costing Project

The Milieu Manufacturing Company (MMC) makes and sells two products, A and B. Each

product is made up of two raw materials, RM-1 and RM-2. Established standards and projected costs for the next year are as follows:

Product A B

	Input cost	quantity	cost	quantity	cost
RM-1	$10/unit	2 units	$20	3 units	$30
RM-2	$15/unit	3 units	$45	4 units	$60
Direct Labor	$20/hour	4 hours	$80	5 hours	$100
Variable OH	50%DL$	4 hours	$40	5 hours	$50
Total Standard Variable Cost			$185		$240
Budgeted Selling Price			$500		$600

Fixed OH costs: $3,600,000, allocated on the practical capacity basis of 90,000 direct labor hours.

Selling and Administrative costs: $2,000,000.

Budgeted and actual unit and selling price figures were as follows:

Product A B

Budgeted sales 10000 units 7000 units

Actual sales 11325 units 6000 units

Actual production 11500 units 7500 units

Actual selling price $490 $610

Anticipated market size 170,000 units

Anticipated market share 10%

Actual market size 165,000 units

Actual market share ?

Actual results were as follows:

Use

Input Beginning Bal. Purchases Cost Product A Product B

RM-1 2000 units 47,000 units $477,050 22,500 units 22,000 units

RM-2 4000 units 64,000 units $950,400 36,225 units 31,500 units

DLabor $1,634,075 45,000 hrs 36,500 hrs

Variable OH $840,000

Fixed OH $3,575,000

Selling and Administration $2,086,000

Required:

Part I.

A. Produce a budgeted Income Statement

B. Produce a flexible budget Income Statement

C. Produce an actual Income Statement: assume that any beginning RM inventory cost the

same per unit as this year's actual unit price. Assume there was no beginning FG inventory.

D. What is the total operating income variance?

Part II.

A. For each product, calculate the

1. Materials price variance

2. Materials usage variance

3. Direct labor rate variance

4. Direct labor efficiency variance

5. Variable overhead rate variance

6. Variable overhead efficiency variance

B. Analyze MMC's variable cost variances and provide reasonable explanations for what may have caused them.

C. In total, calculate the:

1. Fixed overhead budget variance

2. Fixed overhead volume variance

3. Amount of under or over-applied overhead

4. Overhead spending variance if MMC uses a three-way OH variance

5. Total overhead flexible budget variance if MMC uses a two-way OH variance.

D. Taking into account all manufacturing variances, analyze MMC's operating efficiency.

Part III.

A. Calculate:

1. Individual and total selling price variances

2. The sales volume variance

3. The sales mix variance

4. The market size variance

5. The market share variance

B. Taking all the sales and market variances into account. evaluate MMC's overall effectiveness.

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