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Solomon Medical Equipment Company makes a blood pressure measuring kit
Solomon 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 33,000 kits 34,100 kits
Direct materials $211,200 $255,340 Direct labor 178,200 177,240 Variable manufacturing overhead 49,500 54,150 Total variable costs 438,900 486,730 Fixed manufacturing overhead 209,000 203,900
Total manufacturing cost $647,900 $690,630
a. Convert the static budget into a flexible budget.
b. Calculate the variances.
Expert Solution
a)
| Solomon Medical Equipment company | ||
| Flexible budget 34100 Kits | ||
| Particulars | Amount $ | |
| Direct Material | ($211200/33000 Kits)*34100 Kits | 218240 |
| Direct Labor | ($178200/33000 Kits)*34100 Kits | 184140 |
| Variable Manufacturing Overhead | ($49500/33000 Kits)*34100 Kits | 51150 |
| Total Variable costs | 453530 | |
| Fixed Manufacturing Overhead | 209000 | |
| Total Manufacturing Cost | 662530 | |
b)
| Adam Medical Equipment company | ||||
| Variance Report | ||||
| Particulars | Flexible budget | Actual Results | Variance | Remark |
| Direct Material | 218240 | 255340 | -37100 | Unfavorable |
| Direct Labor | 184140 | 177240 | 6900 | Favourable |
| Variable Manufacturing Overhead | 51150 | 54150 | -3000 | Unfavorable |
| Total Variable costs | 453530 | 486730 | -33200 | Unfavorable |
| Fixed Manufacturing Overhead | 209000 | 203900 | 5100 | Favourable |
| Total Manufacturing Cost | 662530 | 690630 | -28100 | Unfavourable |
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