ABC Company had the following budget for November 2018: Budgeted Contribution Income Statement November 2018 Sales (1,800
Question:
ABC Company had the following budget for November 2018:
Budgeted Contribution Income Statement November 2018 | |||
Sales (1,800 units) | $450,000 | ||
Less variable costs | |||
Variable cost of goods sold | |||
Direct materials (10 ounces / unit) | $90,000 | ||
Direct labor (1.2 labor hours / unit) | 36,000 | ||
Manufacturing overhead (0.25 machine hours / unit) | 27,000 | ||
$153,000 | |||
Selling (based directly on units) | 108,000 | ||
261,000 | |||
Contribution margin | 189,000 | ||
Less fixed cost | |||
Manufacturing overhead | 80,000 | ||
Selling | 60,000 | ||
Administrative | 21,000 | ||
161,000 | |||
Net income | $28,000 | ||
Earlier in the year, demand for their product increased sharply. They raised the price some in an attempt to optimize profitability. Acquiring additional materials was not a big problem. In fact, their supplier was happy to see them raise their quantity per order. Conversely, labor was a more difficult problem. The community around the plant had low unemployment and a fairly stable population. Thus, the only option was to offer the current employees overtime at 1.5 times their normal hourly wage. And, the only option with the machinery was to run it more hours and “baby” it so that it would not breakdown.
Overall the results at the end of the month looked pretty good:
Actual Contribution Income Statement November 2018 | |||
Sales (2,500 units) | $687,500 | ||
Less variable costs | |||
Variable cost of goods sold | |||
Direct materials (25,500 ounces) | $125,000 | ||
Direct labor (3,200 labor hours) | 57,500 | ||
Manufacturing overhead (550 machine hours) | 48,750 | ||
$231,250 | |||
Selling (based directly on units) | 188,000 | ||
419,250 | |||
Contribution margin | 268,250 | ||
Less fixed cost | |||
Manufacturing overhead | 78,000 | ||
Selling | 75,000 | ||
Administrative | 23,000 | ||
176,000 | |||
Net income | $92,250 | ||
Your job is to prepare for a meeting between the owner and the president of ABC Company. The owner has asked you to be ready to describe all differences between budgeted and actual numbers.
Variance | Amount | Concise Explanation for the Owner |
Total Volume Variance in terms of Net Income | ||
Sales Price Variance | ||
Direct Materials Efficiency Variance | ||
Direct Materials Price Variance | ||
Direct Labor Efficiency Variance | ||
Direct Labor Rate Variance | ||
Variable Manufacturing Overhead Efficiency Variance | ||
Variable Manufacturing Overhead Spending Variance | ||
Variable Selling Spending Variance | ||
Fixed Manufacturing Overhead Spending Variance | ||
Fixed Selling Spending Variance | ||
Fixed Administrative Spending Variance |
Expert Answer:
