Chapter 16, Problem 53P

Find Data for Profit Variance Analysis

Required

Find the values of the missing items (a) through (x). Assume that actual sales volume equals actual production volume. (There are no inventory level changes.)

To determine

Find the missing data to prepare 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 profit variance analysis:

	Actual Revenue & Costs	Manufacturing variance	Marketing and administrative variance	Sales price variance	Flexible budget	Sales Activity Variance	Master budget
Units Produced	24,000(1)				24,000	4,000F(2)	20,000
Sales revenue	$39,600(7)			$3,600F	$36,000(6)	$6,000F(8)	$30,000
Less: Variable costs
Manufacturing	$21,000(10)	$1,800U(9)			$19,200	$3,200U	$16,000
Marketing &administrative costs	$4,320		$480F(11)		$4,800	$800U	$4,000
Contribution margin	$14,280(12)	$1,800U	$480F	$3,600F	$12,000	$2,000F	$10,000
Less: Fixed Costs
Manufacturing	$4,600(13)	$400F			$5,000(3)		$5,000
Marketing &administrative costs	$3,600		$600U(16)		$3,000(4)		$3,000
Operating Profits	$6,080(14)	$1,400U(15)	$120U(17)	$3,600F	$4,000	$2,000F	$2,000(5)

Table: (1)

Working Note 1:

Actual units and fixed budget units:

$\begin{array}{c}\text{Flexible budget units = Sales activity variance + Master budget units}\\ \text{= 4,000 + 20,000}\\ \text{= 24,000 units}\end{array}$

Working Note 2:

Budgeted variable marketing and administrative cost:

$\begin{array}{c}\text{Budgeted variavble cost = Flexible budget cost - sales activity variance}\\ \text{= \$4,800 - \$800U}\\ \text{= \$4,000}\end{array}$

Working Note 3:

Flexible budget fixed manufacturing cost:

$\begin{array}{c}\text{Fixed manufacturing cost = Contribution -fixed manufacturing cost-operating profit}\\ \text{= \$12,000 - \$3,000 - \$4,000}\\ \text{= \$5,000}\end{array}$

Working Note 4:

Master budget fixed marketing and administrative cost:

Fixed cost in the master budget will be the same as given in the flexible budget which is $3,000.

Working Note 5:

Master budget operating profit:

$\begin{array}{c}\text{Operating profit = contribution maring - fixed costs}\\ \text{= \$10,000 - \$5,000(1) - \$3,000(2)}\\ \text{= \$2,000}\end{array}$

Working Note 6:

Flexible budget sales revenue:

$\begin{array}{c}\text{Sales revenue = Contribution margin + variable costs}\\ \text{= \$12,000 + \$19,200 + \$4,800}\\ \text{= \$36,000}\end{array}$

Working Note 7:

Actual sales revenue:

$\begin{array}{c}\text{Actual sales revenue = Sales price variance + Flexible budget sales revenue}\\ \text{= \$3,600F + \$36,000(6)}\\ =\text{ \$39,600}\end{array}$

Working Note 8:

Sales activity variance:

$\begin{array}{c}\text{Sales activity variance = Flexible budget - Master budget}\\ \text{= \$36,000(6) - \$30,000}\\ \text{= \$6,000F}\end{array}$

Working Note 9:

Manufacturing variance will be equal to the total manufacturing variance which is $1,800U.

Working Note 10:

Actual variable manufacturing cost:

$\begin{array}{c}\text{Variable manufacturing cost = Manufacturing variance + flexible budget cost}\\ \text{= \$1,800U(9) + \$19,200}\\ \text{= \$21,000}\end{array}$

Working Note 11:

Marketing and administrative variance:

$\begin{array}{c}\text{Marketing and administrative variance = Actual - flexible budget}\\ \text{= \$4,320 - \$4,800}\\ \text{= \$480F}\end{array}$

Working Note 12:

Contribution margin:

$\begin{array}{c}\text{Contrbution margin = sales revenue - variable costs}\\ \text{= \$39,600(7) - \$21,000(10) - \$4,320}\\ \text{= \$14,280}\end{array}$

Working Note 13:

Actual fixed manufacturing cost:

$\begin{array}{c}\text{Acutal cost = Manufacturing variance + Flexible budget cost}\\ \text{= \$5,000 (3) -\$400F}\\ =\text{ \$4,600}\end{array}$

Working Note 14:

Operating profit:

$\begin{array}{c}\text{Profit = Contribution margin - fixed cost}\\ \text{= \$14,280(12) - \$4,600(13) - \$3,600}\\ \text{= \$6,080}\end{array}$

Working Note 15:

Total manufacturing variance:

$\begin{array}{c}\text{Manufacturing variance = Favorable variance - unfavorable variance}\\ \text{= \$400F - \$1,800U}\\ \text{=\$1,400U}\end{array}$

Working Note 16:

Fixed marketing and administrative variance:

$\begin{array}{c}\text{Variance = Actual - Flexible}\\ \text{= \$3,600 - \$3,000}\\ \text{= \$600U}\end{array}$

Working Note 17:

Total marketing and administrative variance:

$\begin{array}{c}\text{Total variance = Favorable - Unfavorable}\\ \text{= \$480F(11) - \$600U(16)}\\ \text{= \$120U}\end{array}$