You are the VP of Finance of XM, the leading producer of refrigeration equipment for the domestic
Question:
You are the VP of Finance of XM, the leading producer of refrigeration equipment for the domestic market. XM sells all of its products to a large retail chain. Based on the Actual vs. Budget Report (Excel file), XM’s CEO was concerned about the significant shortfall in profits of $8,550 and asked you for more information.
XM Actual vs. Budget Report | ||||
Actual | Budget | Variance | ||
Sales units | 1000 | 1050 | -50 | |
Price | $ 700 | $ 700 | ||
Revenue | $700,000 | $735,000 | -35,000 | |
Cost of Production | ||||
Material per unit | $ 250 | |||
Total materials cost | $245,700 | $262,500 | -16,800 | |
Labour per unit | $ 150 | |||
Total labor cost | 152,250 | 157,500 | -5,250 | |
Manufacturing overhead per unit | $ 70 | |||
Total manufacturing overhead cost | 75,600 | 73,500 | 2,100 | |
Total manufacturing cost | $473,550 | $493,500 | -19,950 | |
Gross margin | $226,450 | $241,500 | -15,050 | |
Selling and admin. Expense | $183,500 | $190,000 | -6,500 | |
Not operating profit | $ 42,950 | $ 51,500 | -8,550 |
Requirements:
1. Revise the Actual vs. Budget Report using a flexible budget. Provide commons on the overall profitability of XM to the CEO.
2. Calculate all following variances, and indicate whether the variance is favorable or unfavorable, provide your interpretations and explanations to the CEO on the meanings of those variances.
Materials price variance
Materials quantity variance
Labor price variance
Labour quantity variance
Overhead price variance
Overhead quantity variance
Basic Marketing Research
ISBN: 978-1133188544
8th edition
Authors: Tom J. Brown, Tracy A. Suter, Gilbert A. Churchill