Compute the variances for chefs company

Question

Question 1:

Markus Corporation's sales of gizmos are 25% for cash and 75% on credit. Past collection history indicates that credit sales are collected as follows:

            30% in the month of sale
            60% in the month following sale
            10% in the second month following sale

In January, sales were $42,000 and February sales were $45,000. Projected sales for March are 3,000 gizmos at $10 each. Projected sales for April are 4,500 gizmos at $12 each. The cash balance at March 1 was $5,785.

Markus expects to purchase $24,000 of materials in February and $21,000 of materials in March. Three-quarters of all purchases are paid for in the month of purchase, and the other one-fourth are paid for in the month following the month of purchase. In addition, a 2% discount is allowed for payments made in the month of purchase. All other fixed expenses are $7,000 per month and are paid in the month of purchase.

Instructions:

A. Prepare a cash budget for March. 
B. Why is the cash budget important?

Question 2: Chefs Company developed the following standard costs for its product for 2006:

CHEFS COMPANY

Standard Cost Card

Cost Elements                 Standard Quantity      x        Standard Price         =        Standard Cost

Direct materials                     4 pounds                              $10                                    $40

Direct labor                            2 hours                                 20                                      40

Variable overhead                   2 hours                                  8                                      16

Fixed overhead                       2 hours                                  4                                        8

                                                                                                                               $104

The company expected to work at the 30,000 direct labor hours level of activity and produce 15,000 units of product.

Actual results for 2006 were as follows:

• 14,200 units of product were actually produced.
• Direct labor costs were $552,420 for 27,900 direct labor hours actually worked.
• Actual direct materials purchased and used during the year cost $543,320 for 57,800 pounds.
• Total actual manufacturing overhead costs were $340,000.

Instructions:

Compute the following variances for Chefs Company for 2006 and indicate whether the variance is favorable or unfavorable.

1. Direct materials price variance.
2. Direct materials quantity variance.
3. Direct labor price variance.
4. Direct labor quantity variance.
5. Overhead controllable variance.
6. Overhead volume variance.