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    Financial Control - 2 - Flexible Budgets and Variances - Webb Company With Solution

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    Quang Nhựt

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    Financial Control - 2 - Flexible Budgets and Variances - Webb Company With Solution

    Uploaded by

    Quang Nhựt
    449 views5 pages

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    Financial Control - 2 - Flexible Budgets and Variances - Webb Company with solution

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    449 views5 pages

    Financial Control - 2 - Flexible Budgets and Variances - Webb Company With Solution

    Uploaded by

    Quang Nhựt

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 5

    Flexible Budgets and Variances Case Study: Webb Company

    Consider Webb Company, a firm that manufactures and sells jackets. The
    jackets require tailoring and many other hand operations. Webb sells
    exclusively to distributors, who in turn sell to independent clothing stores
    and retail chains. For simplicity, we assume that Webb’s only costs are in
    the manufacturing function; Webb incurs no costs in other value-chain
    functions, such as marketing and distribution. We also assume that all
    units manufactured in April N are sold in April N. Therefore, all direct
    materials are purchased and used in the same budget period, and there is
    no direct materials inventory at either the beginning or the end of the
    period. No work-in-process or finished goods inventories exist at either
    the beginning or the end of the period.

    Webb has three variable-cost categories. The budgeted variable cost per
    jacket for each category is as follows:

    Variable costs information:


    DM per unit 60
    DL per unit 16
    Man ovh per unit 12
    Var cost per unit 88

    The number of units manufactured is the cost driver for direct materials,
    direct manufacturing labor, and variable manufacturing overhead. The
    relevant range for the cost driver is from 0 to 12,000 jackets. Budgeted
    and actual data for April N follow:

    Budgeted and actual data


    Budgeted fixed costs ($) 276 000
    Budgeted selling price per unit ($) 120
    Budgeted production and sales (in jackets) 12 000
    Actual production and sales (in jackets) 10 000

    © Pearson Edition – Olivier Greusard for Financial Control 1


    Level 1 Analysis – Present the static Budget and the static Budget
    variances using the templates provided.

    © Pearson Edition – Olivier Greusard for Financial Control 2


    You are now asked to prepare the flexible budget of Webb Company for
    April N. The flexible budget is prepared at the end of the period (April N),
    after the actual output of 10,000 jackets is known. The flexible budget is
    the hypothetical budget that Webb would have prepared at the start of the
    budget period if it had correctly forecast the actual output of 10,000
    jackets.

    Level 2 Analysis – Present the Flexible Budget and the Flexible


    Budget and Sales Volume variances using the templates provided.

    © Pearson Edition – Olivier Greusard for Financial Control 3


    To calculate price and efficiency variances, Webb needs to obtain
    budgeted input prices and budgeted input quantities. Webb’s three main
    sources for this information are past data, data from similar companies,
    and standards.
    You gathered the following information to be able to detail the price and
    efficiency variances for April N:
    Standard direct material cost per jacket: 2 square yards of cloth input
    allowed per output unit (jacket) manufactured, at $30 standard price per
    square yard.
    Standard direct manufacturing labor cost per jacket: 0.8 manufacturing
    labor-hour of input allowed per output unit manufactured, at $20 standard
    price per hour.
    Actual direct material cost: 22,200 square yards of cloth input have been
    purchased and used.
    Actual direct manufacturing labor cost: 9,000 manufacturing labor-hours
    of input have been incurred.

    Level 3 Analysis – Calculate the price and efficiency variances both


    for Direct Material and Direct using the templates provided.

    © Pearson Edition – Olivier Greusard for Financial Control 4


    Webb estimates a rate of $30 per standard machine-hour for allocating its
    variable overhead costs.
    Additional information about Overhead for Webb Company is given as
    followed:

    Calculate the variable and fixed overhead variances

    © Pearson Edition – Olivier Greusard for Financial Control 5

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