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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000 units
Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . $672,000
Variable costs
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,200
Marketing and administrative. . . . . . . . . . . . . . . . . . 61,400
Contribution margin. . . . . . . . . . . . . . . . . . . . . . . $463,400
Fixed costs
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205,000
Marketing and administrative. . . . . . . . . . . . . . . . 113,200
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . $145,200
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
a. Construct the master budget for the period.
b. Prepare a profit variance analysis like the one in Exhibit 16.5.