# Quiz 15: Cost Control

Flexible budget A flexible budget is a budget that changes with the change in the level of the output. The total variable overhead cost is that cost which is incurred for producing a product. In other words, it is the total cost that is incurred for the production of the product and is directly attributable to that product. A flexible budget performance report used to differentiate between actual performance and budgeted performance on the bases of activity level or actual sales level. This report helps management to know the substantial changes from budgeted to actual in real figures. Prepare a flexible budget as follows: Working Notes (W. N.)Calculate the amount of direct materials for 17,500 units as follows: Hence, the amount of direct materials for 17,500 units is $140,000. Calculate the amount of direct materials for 18,000 units as follows: Hence, the amount of direct materials for 18,000 units is $144,000. Calculate the amount of direct labor for 17,500 units as follows: Hence, the amount of direct labor for 17,500 units is $175,000. Calculate the amount of direct labor for 18,000 units as follows: Hence, the amount of direct labor for 18,000 units is $180,000. Calculate the amount of variable overhead for 17,500 units as follows: Hence, the amount of direct materials for 17,500 units is $105,000. Calculate the amount of variable overhead for 18,000 units as follows: Hence, the amount of direct materials for 18,000 units is $108,000.

According to the provided information, the actual raw materials are . The actual direct labor is . The actual variable overhead is . Therefore, the raw materials variance is . The direct labor variance is . The variable overhead variance is . The fixed overhead variance is The flexible budget and performance report for August is as below:

Materials Price Variance: Material price variance is the variance calculated as difference between standard price of material with the actual price of material used in the production activity. If the standard price of material is more than the actual price then the variance calculated is said to be favorable. If the standard price of material is less than the actual price then the variance calculated is said to be unfavorable. Calculate the materials price variance as shown below: Thus, the materials price variance is . Materials Usage Variance: Material usage variance is the variance calculated as difference between standard quantity of material to be used in the actual production activity with the actual quantity of material used in the production activity. If the standard quantity of material is more than the actual quantity used then the variance calculated is said to be favorable. If the standard quantity of material is less than the actual quantity used then the variance calculated is said to be unfavorable. Calculate the materials usage variance as shown below: Thus, the materials usage variance is .

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