McGregor Electronics makes wireless handheld telephones and answering machine units for use in the home. It makes two models, a three-phone set with answering machine and a six-phone set with answering machine. It also sells freestanding phones that can be added to any one of the existing systems. The company is trying to understand the profitability of its product lines, so it develops the following information.

REQUIRED:

a. Prepare a line item variance report for the three product lines at McGregor’s. Remember that positive variances for revenues are favorable (actual larger than budget) and positive variances for expenses are unfavorable.

b. Convert everything in the tables into percentages.

c. Prepare a line item variance report using your percentages.

d. Compare the variances when using absolute dollars to those using percentages, focusing on line items where the percentage variance gives a different picture of performance than the absolute variances. Do they give the same information? Why or why not?

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McGregor Electronics Line Item Three-Phone Sets Six-Phone Sets Single Phones Budget Actual Budget Actudl Budget Actual Revenue $25,000,000 $24,750,000 $85,000,000 $92,000,000 $5,000,000 $62,500,000 Less: Cost of goods sold S11,250,000 $12,500,000 $36,550,000 $39,560,000 $26,400,000 S28,750,000 Gross margin S13,750,000 $12,250,000 $48,450,000 $52,440,000 $28,600,000 S33,750,000 Order processing Packing $1,500,000 S1,800,000 $5,200,000 $6,400,000 $4,500,000 $5,000,000 $3,800,000 $3.600,000 $12,500,000 S13,800,000 $9,300,000 S10,000,000 Invoicing General overhead $1,800,000 S1,900,000 $4,500,000 $5,400,000 $4,500,000 $5,400,000 $4,200,000 $4,400,000 $15,420,000 $17,500,000 $6,300,000 $7,500,000 Total SG8A $11,300,000 $11,700,000 $37,620,000 $43,100,000 $24,600,000 S27,900,000 Profit before tax $2,450,000 $550,000 $10,830,000 $9.340,000 $4,000,000 $5,850,000 Profit percentoge 7.27% 9.80% 2.22% 12.74% 10.15% 9.36%