Fundamentals Of Cost Accounting (6th Edition)
Fundamentals Of Cost Accounting (6th Edition)
6th Edition
ISBN: 9781259969478
Author: WILLIAM LANEN, Shannon Anderson, Michael Maher
Publisher: McGraw Hill Education
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Textbook Question
Chapter 16, Problem 51P

Solve for Master Budget Given Actual Results

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:

Chapter 16, Problem 51P, Solve for Master Budget Given Actual Results A new accounting intern at Gibson Corporation lost the

The company planned to produce and sell 108,000 units for $5 each. At that volume, the contribution margin would have been $380,000. Variable marketing and administrative costs are budgeted at 10 percent of sales revenue. Manufacturing fixed costs are estimated at $2 per unit at the normal volume of 108,000 units. Management notes, “We budget an operating profit of $1 per unit at the normal volume.”

Required

  1. a.      Construct the master budget for the period.
  2. b.      Prepare a profit variance analysis like the one in Exhibit 16.5.

a.

Expert Solution
Check Mark
To determine

Prepare the master budget for the period based on given information.

Explanation of Solution

Master Budget:

The master budget is prepared for synchronizing the organization goals with that of the individual units. Such a budget is particularly used to assess the actual performance. Operating and financial budgets are included in the master budgets.

Prepare the master budget for the period:

 Master budget
Units Produced108,000
Sales revenue (108,000units × $5)$540,000
Less: Variable costs 
Manufacturing  ($540,000 - $54,000 - $380,000)$106,000
Marketing &administrative costs (10%×$540,000)$54,000
Contribution margin$380,000
Less: Fixed Costs 
Manufacturing ($2× 108,000 units)$216,000
Less: Marketing &administrative costs ($380,000 - $216,000 - $108,000)$56,000
Operating Profits($1 × 108,000 units)$108,000

Table: (1)

b.

Expert Solution
Check Mark
To determine

Prepare a profit variance analysis.

Explanation of Solution

Profit variance analysis:

The analysis that studies the difference between the actual operating profit and the standard operating profit is called the profit variance analysis.

Prepare a profit variance analysis:

 

Actual Revenue & Costs

(a)

Manufacturing variance

(b)=(da)

Marketing and administrative variance

(c)=(da)

Sales price variance

Flexible budget

(d)

Sales Activity Variance

(e)=(df)

Master budget

(f)

Units Produced120,000   120,00012,000108,000
Sales revenue$672,000  $72,000F$600,000(1)$60,000F$540,000
Less: Variable costs       
Manufacturing$147,200$29,422U  $117,778(4)$11,778U$106,000
Marketing &administrative costs$61,400 $1,400U $60,000(3)$6,000U$54,000
Contribution margin$463,400$29,422U$1,400U$72,000F$422,222(2)$42,222$380,000
Less: Fixed Costs       
Manufacturing$205,000$11,000F  $216,000 $216,000(5)
Marketing &administrative costs$113,200 $57,200U $56,000 $56,000(7)
Operating Profits$145,200$18,422U$58,600U$72,000F$150,222$42,222F$108,000(6)

Table: (2)

Working Note 1:

Flexible budget sales revenue = Flexible budget units × budgeted unit price= 120,000 × $5= $600,000

Working Note 2:

 Contribution margin flexible budget}(Master contribution marginMaster units× Flexible budget units)$380,000108,000× 120,000= $422,222

Working Note 3:

Flexible budget marketing and administrative cost= 10% × $600,000(1)= $60,000

Working Note 4:

Flexible budget Manufacturing cost}(Master manufacturing costMaster units× Flexible budget units)=$106,000108,000×120,000= $117,778

Working Note 5:

Master budget fixed manufacturing cost = $2 × 108,000 master budget units= $216,000

Working Note 6:

Master budget operating profit = $1 × 108,000 master budget units= $108,000

Working Note 7:

 Master budget fixed marketing and administrative cost}= $380,000 - $216,000(5) - $108,000(6)= $56,000

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Chapter 16 Solutions

Fundamentals Of Cost Accounting (6th Edition)

Ch. 16 - What is the link between flexible budgeting and...Ch. 16 - Actual revenues are greater than budgeted for...Ch. 16 - Pick an organization you know, such as a school,...Ch. 16 - Give two reasons why dividing production cost...Ch. 16 - Prob. 15CADQCh. 16 - My firm has a wage contract with the union....Ch. 16 - Prob. 17CADQCh. 16 - The production volume variance should be charged...Ch. 16 - Prob. 19CADQCh. 16 - Prob. 20CADQCh. 16 - Flexible Budgeting The master budget at Western...Ch. 16 - Sales Activity Variance Refer to the data in...Ch. 16 - Profit Variance Analysis Refer to the data in...Ch. 16 - Flexible Budget Given the data shown in the...Ch. 16 - Fill in Amounts on Flexible Budget Graph Fill in...Ch. 16 - Flexible Budget Label (a) and (b) in the graph and...Ch. 16 - Prepare Flexible Budget Osage, Inc., manufactures...Ch. 16 - Sales Activity Variance Refer to the data in...Ch. 16 - Profit Variance Analysis Use the information from...Ch. 16 - Sales Activity Variance The following data are...Ch. 16 - Sales Activity Variance Selected data for October...Ch. 16 - Prob. 32ECh. 16 - Prob. 33ECh. 16 - Prob. 34ECh. 16 - Prob. 35ECh. 16 - Prob. 36ECh. 16 - Prob. 37ECh. 16 - Variable Cost Variances The following data reflect...Ch. 16 - Variable Cost Variances The records of Norton,...Ch. 16 - (Appendix used in requirement [b]) Variable Cost...Ch. 16 - (Appendix used in requirement [b]) Variable Cost...Ch. 16 - Fixed Cost Variances Information on Carney...Ch. 16 - Prob. 43ECh. 16 - Prob. 44ECh. 16 - Fixed Cost Variances Mint Company applies fixed...Ch. 16 - Prob. 46ECh. 16 - Prob. 47ECh. 16 - (Appendix used in requirement [c]) Comprehensive...Ch. 16 - Comprehensive Cost Variance Analysis NSF Lube is a...Ch. 16 - Overhead Variances Brice Corporation shows the...Ch. 16 - Solve for Master Budget Given Actual Results A new...Ch. 16 - Find Missing Data for Profit Variance Analysis...Ch. 16 - Find Data for Profit Variance Analysis Required...Ch. 16 - Prob. 54PCh. 16 - Prepare Flexible Budget Odessa, Inc., reports the...Ch. 16 - Prob. 56PCh. 16 - Prob. 57PCh. 16 - Prob. 58PCh. 16 - Prob. 59PCh. 16 - Prob. 60PCh. 16 - Direct Materials Information about direct...Ch. 16 - Prob. 62PCh. 16 - Prob. 63PCh. 16 - Prob. 64PCh. 16 - Overhead Cost and Variance Relationships...Ch. 16 - Prob. 66PCh. 16 - Prob. 67PCh. 16 - Ethics and Standard Costs Farmer Franks produces...Ch. 16 - Comprehensive Variance Problem The standard cost...Ch. 16 - Prob. 70PCh. 16 - Find Actual and Budget Amounts from Variances JW...Ch. 16 - Variance Computations with Missing Data The...Ch. 16 - Comprehensive Variance Problem Sweetwater Company...Ch. 16 - Prob. 74PCh. 16 - Prob. 75PCh. 16 - Keewee Company manufactures a single product for...
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