The annual budget of XYZ CORP. is shown below:

 

Sales Standard cost of sales:	2,400,000	(Selling price is 1/ unit)
Prime costs	960,000	(Materials = 2.5 lbs/ unit @ 0.10/ lb;
		(Labor = 1 minute/ unit @ 9/ hr)
Prodn. Overhead	840,000
Total standard cost	1,800,000	(Production volume = Sales volume)
Gross margin	600,000
Selling & admin expenses	360,000
Income before taxes	240,000

 

Prime costs were all variable and variable overhead equal to 25% of prime costs. Seling and admin expenses are all fixed except for commissions amounting to 5% of sales.

 

The actual results of operations for the month of January show the following:

Sales	140,000
Standard cost of sales	105,000
Gross margin (standard)	35,000
Less: Prime cost variance	( 3,500)	(Materials = 390,000 lbs @ .09/lb)
		(Labor = P 28,400 for 2,500 hrs)
Overhead variance	1,000
Volume variance	(12,500)
Gross margin (actual)	20,000
Selling & admin expenses	27,000
Net loss	( 7,000)

 

Questions:      

What is the break-even point?          

How much was actual production volume in January?                       

How much was actual production costs in January?                          

Calculate the 4 detailed prime costs variances:

What variances caused the difference budgeted net income vs the actual net loss in January?