At the end of 1923, Al Kapon vice president of Chicago Syndicate, Inc. stared out the window of his posh west side office in dismay. His expectations for a highly profitable year were dashed. The disappointing results appear below:

	Plan	Actual	Variance
Sales	$500,000	$456,000	$44,000
Direct materials	50,000	48,000	2,000	F
Direct labor	200,000	201,000	1,000	U
Variable OH	100,000	92,000	8,000	F
Total variable cost	350,000	341,000	9,000	F
Contribution Margin	150,000	115,000	35,000
Fixed costs	100,000	98,000	2,000	F
Syndicate profit	50,000	17,000	33,000	U

Mr. Kapon realized that because sales were down expenses should also fall, such that profit should be somewhat more than $17,000. His organization which made only one product (the identity of which cannot be disclosed), incorporated the following data into its plans.

STANDARD COST AND CONTRIBUTION MARGIN
Selling price		$10
direct materials (2 quarts @ .50/qt)	$1
direct labor (.8 hour at $5/hr)	4
variable overhead ($2.50/DLH)	2	7
Standard contribution margin		3

The firm planned sales of 50,000 units but sold only 48,000. Materials bought and used were 100,000 quarts. Direct labor hours were 40,000. Production was 48,000 units.

REQUIRED:

Prepare a profit analysis to explain why the syndicate profit is $33,000 below what is expected. Compute the detailed variances that would explain the above analysis.

Answer rating: 100% (QA)

A D E F G H Flexible Static Budget Spending variance Difference between A B Budget Activity variance ... View the full answer