Safety Auto Accessories manufactures an automobile safety seat for children that it sells through several retail chains.

Safety Auto makes sales exclusively within its five-state region in the Midwest. The cost of manufacturing and marketing children's automobile safety seats at the company's forecasted volume of 15,000 units per month follows:

Variable Materials .................................................................................... $300,000

Variable Labor ........................................................................................... 150,000

Variable Overhead........................................................................................ 30,000

Fixed Overhead .......................................................................................... 180,200

Total Manufacturing Costs ...................................................................... $660,200

Variable Nonmanufacturing Costs............................................................ $ 75,000

Fixed Nonmanufacturing Costs................................................................. 105,000

Total Nonmanufacturing Costs................................................................. $180,000

Total Costs................................................................................................. $840,200

Unless otherwise stated, you should assume a regular selling price of $70 per unit. Ignore income taxes and other costs the problem does not mention.

Early in July, the senior management of Safety Auto Accessories met to evaluate the firm on performance for the first half of the year. The following exchange ensued.

Bob Wilson (president): ‘‘Our performance for the first half of this year leaves much to be desired. Despite higher unit sales than forecast, our actual profits are lower than what we expected.''

Sam Brown (sales manager): ‘‘I suspect production needs to shape up'' (he said smugly). ‘‘We in sales have pursued an aggressive marketing strategy and the three quarters of a million sales revenue higher than forecast is proof enough of our improved performance."

Linda Lampman (production manager): ‘‘Wait a minute, now! We managed to bring down unit costs from $44.00 to $43.00 with no help from sales, I must add! What's the use of production plans when sales can change them anytime it likes? In February, Sam wanted a rush order for 4,000. In March, it was 8,000 units. Then in April he said to hold off on production; then in June he wanted 6,000. You know what I think. . . ."Wilson: ‘‘Hold on, now! I refuse to let this degenerate into a witch hunt. We have to examine this problem with more objectivity.'' (He turned to his assistant, who had been quietly taking notes.) ‘‘Do you have any ideas, Smith?''

Suppose you are Smith. Write a report to the president analyzing the company's performance.

Include a comparison of the actual results to the flexible budget and to the master budget. You know that planned production and sales for each month of the year is 15,000 units per month. You also know that 108,000 units were produced and sold in the first six months of this year, and the income statement for the first six months was asfollows:

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Sales Revenue Manufacturing Costs: 7,020,000 Variable Materials Variable Labor Variable Overhead Fixed Overhead $2,160,000 1,134,000 324,000 1026,000 Gross Margin Marketing Costs: $2,376,000 Variable Marketing Fixed Marketing. 648,000 650,000 1298,000 $1,078,000