Accounting Module 6 P6-1 and P6-2 Problem

| October 3, 2018

Financial Accounting and the Entrepreneur CellBase Technologies manufactures capacitors for cellular base stations and other communication applications. The company’s December 2011 flexible budget income statement for show output levels of 7,500, 9,000, and 11,000 units. The company sold 11,000 units during December and its actual operating income was as follows: Requirements 1. Prepare an income statement performance report for December. 2. What was the effect on CellBase Technologies operating income of selling 2,000 units more than the static budget levels of sales? 3. What is CellBase Technologies’ static budget variance? Explain why the income statement performance report provides more useful information to CellBase Technologies’ managers than the simple static budget variance. What insights can CellBase Technologies’ managers draw from this performance report. Requirement 1 Prepare the income statement performance report. CellBase Technologies Income Statement Performance Report Month Ended December 31, 2011 Actual Results at Actual Prices Flexible Budget Variance Flexible Budget for Actual Number of Output Units Sales Volume Variance Static (Master) Budget Output units Sales revenue Variable expense Fixed expenses Total expense – Operating income $- Requirement 2 What was the effect on CellBase Technologies operating income of selling 2,000 units more than the static budget levels of sales? Requirement 3 What is CellBase Technologies’ static budget variance? Explain why the income statement performance report provides more useful information to CellBase Technologies’ managers than the simple static budget variance. What insights can CellBase Technologies’ managers draw from this performance report. Financial Accounting and the Entrepreneur SmartSound manufacturers headphone cases. During September 2011, the company produced 105,000 cases and recorded the following data: Requirements 1. Compute the price variance and efficiently variance for direct materials and for direct labor. 2. For manufacturing overhead, compute the total variance, the flexible budget variance, and the production volume variance. 3. Prepare a standard cost income statement through gross profit to report all variances to management. Sale price of the headset cases was $1.50 each. 4. SmartSound’s management used more-expensive workers during September. Explain the trade-off between the two direct labor variances. Requirement 1 First compute the price variances for direct materials and direct labor. Indicate favorable or unfavorable. Organize the data first: Direct Materials Direct Labor Actual price part /hour Standard price part /hour Actual quantity parts hours Standard quantity parts hours PRICE VARIANCE: Direct materials $- Direct labor $- Next compute the efficiency variances for direct materials and direct labor and select if the amount is favorable or unfavorable. EFFICIENCY VARIANCE: Direct materials $- Direct labor $- Requirement 2 Compute the total variance, the flexible budget variance, and the production volume variance for manufacturing overhead. Smart Sound Computation of Overhead Variances Total overhead variance: Actual overhead cost Standard overhead allocated to production Total overhead variance Overhead flexible budget variance: Actual overhead costs Flexible budget overhead for actual outputs Overhead flexible budget variance Production volume variance: Flexible budget overhead for actual outputs Standard overhead allocated to production Production volume variance Requirement 3 Prepare the standard cost income statement. SmartSound Standard Cost Income Statement Month Ended September 30, 2011 Sales revenue Cost of goods sold at standard cost Manufacturing cost variances: Direct materials price variance Direct materials efficiency variance Direct labor price variance Direct labor efficiency variance Overhead flexible budget variance Production volume variances Total manufacturing variances Cost of goods sold at actual cost Gross Profit Requirement 4 SmartSound’s management used more-expensive workers during September. Explain the trade-off between the two direct labor variances.

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