Sub: Accounts Topic: BudgetaryControl

Question:
Downes Consolidated Industries International uses a standard cost system and records
standards in the accounting records. The standard costs for one unit of one of its products are
as follows.
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Direct Materials, 3lbs.@$20 per lb. $ 60.00

Direct labor, 2 hrs. @$15 per hr. 30.00

Variable overhead, 4machine hrs. @$1 per hr 4.00

Fixed overhead, 4 machine hrs.@$2.50 per hr 10.00

---------

Total $104.00

---------

Overhead is applied on the basis of machine hours. The planned level of activity(denominator
level) is 320,000 machine hours. The total budgeted fixed overhead is $800,000.

Other budgeted items are:

Unit selling price, $170,00 per unit

Variable selling & administrative expenses, $5 per unit

Fixed selling & administrative expenses, $160,000.

Planned level of production and sales, 80,000.

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Sub: Accounts Topic: BudgetaryControl

ACTUAL RESULTS:

Direct materials purchased 250,000 lbs.@$22 per lb.

Direct materials used, 240,000

Direct labor, 150,000 hrs, total cost, $2,225,000

Variable overhead, $340,000

Fixed overhead, $810,000

Units produced, 82,000 Units

Units sold, 80,500

Selling price per unit, 160,00

Variable selling and administrative expenses, $410,000.

Fixed selling & administrative, $175,000.

Actual machine hours, 330,000.

Prepare a Master (Static) Budgeted Income Statement using variable costing.

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Sub: Accounts Topic: BudgetaryControl

Solution:

Standard cost for one unit of

production

Direct Material 3 lbs @ $20 per lb $60.00

Direct Labour 2 hrs @ $15 per hr $30.00
Variable Overhead 4 machine hrs @ $1 per hr $4.00
Fixed Overhead 4 machine hrs @ $2.50 per hr $10.00
Total $104.00

Machine hour 320,000

Total budgeted fixed overhead $ 800,000

Selling price per unit $ 175

Variable Selling & Admin exp (per unit) $ 5
Fixed Selling & Admin exp $ 160,000
Planned level of production & sale 80,000

Production for 80,000

Direct Material $ 4,800,000
Direct Labour $ 2,400,000
Variable Overhead $ 320,000
Variable Selling & Admin exp $ 400,000
$ 7,920,000
Fixed Overhead $ 800,000
Fixed Selling & Admin exp $ 160,000
Total Cost of Production $ 8,880,000

Total Sales Value $ 14,000,000

Net Profit $ 5,120,000

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 Sub: Accounts Topic: BudgetaryControl

Actual cost

Direct Material 2.9813 lbs @ $22 per lb $65.59

Direct Labour 2 hrs @ $14.833 per hr $29.67
Variable Overhead 4 machine hrs @ $1.0559 per hr $4.22
Fixed Overhead 4 machine hrs @ $2.5155 per hr $10.06
Total $109.54

Machine hour 330,000

Total budgeted fixed overhead $ 810,000
Selling units 80,500
Selling price per unit $ 160
Variable Selling & Admin exp (per unit) $ 5.09
Fixed Selling & Admin exp $ 175,000
Planned level of production 80,500

Production for 80,500

Direct Material $ 5,279,882
Direct Labour $ 2,388,113
Variable Overhead $ 340,000
Variable Selling & Admin exp $ 410,000
$ 8,417,995
Fixed Overhead $ 809,991
Fixed Selling & Admin exp $ 175,000
Total Cost of Production $ 9,402,986

Total Sales Value $ 12,880,000

Net Profit $ 3,477,014

** End of the Solution **

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