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Preston Recliners manufactures leather recliners and uses flexible

Price: $3.99

P23-26A Preparing a flexible budget and computing standard cost variances [60–75 min]
Preston Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. Preston allocates overhead based on yards of direct materials. The company’s performance report includes the following selected data:

Static Budget (1,000 recliners)
Actual Results (980 recliners)
Sales (1,000 recliners 􏰂 $ 495) (980 recliners X $ 475)
Variable manufacturing costs:
Direct materials (6,000 yds @ $8.80/yard)

and so on ...


1. Prepare a flexible budget based on the actual number of recliners sold.
2. Compute the price variance and the efficiency variance for direct materials and for direct labor. For manufacturing overhead, compute the variable overhead spending, variable overhead efficiency, fixed overhead spending, and fixed over- head volume variances.
3. Have Preston’s managers done a good job or a poor job controlling materials, labor, and overhead costs? Why?
4. Describe how Preston’s managers can benefit from the standard costing system.

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