A new accounting intern at Gibson Corporation lost the only copy of this period's master budget. The CFO wants to evaluate performance for this period but needs the master budget to do so. Actual results for the period follow. Sales volume 150,000 units Sales revenue $ 1,008,000 Variable costs Manufacturing 221,760 Marketing and administrative 90,720 Contribution margin $ 695,520 Fixed costs Manufacturing 277,000 Marketing and administrative 153,700 Operating profit $ 264,820 The company planned to produce and sell 120,000 units for $6.00 each. At that volume, the contribution margin would have been $504,000. Variable marketing and administrative costs are budgeted at 10 percent of sales revenue. Manufacturing fixed costs are estimated at $2.40 per unit at the normal volume of 120,000 units. Management notes, "We budget an operating profit of $1.00 per unit at the normal volume." Required: a. Construct the master budget for the period. GIBSON CORPORATION Master Budget Sales volume units Sales revenue Variable costs: Manufacturing Marketing and administrative Contribution margin Fixed costs: Manufacturing Marketing and administrative Operating profit b. Prepare a profit variance analysis.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
A new accounting intern at Gibson Corporation lost the only copy of this period's
| Sales volume | 150,000 | units | |
| Sales revenue | $ | 1,008,000 | |
| Variable costs | |||
| Manufacturing | 221,760 | ||
| Marketing and administrative | 90,720 | ||
| Contribution margin | $ | 695,520 | |
| Fixed costs | |||
| Manufacturing | 277,000 | ||
| Marketing and administrative | 153,700 | ||
| Operating profit | $ | 264,820 | |
The company planned to produce and sell 120,000 units for $6.00 each. At that volume, the contribution margin would have been $504,000. Variable marketing and administrative costs are budgeted at 10 percent of sales revenue. Manufacturing fixed costs are estimated at $2.40 per unit at the normal volume of 120,000 units. Management notes, "We budget an operating profit of $1.00 per unit at the normal volume."
Required:
a. Construct the master budget for the period.
|
b. Prepare a profit
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