Golden Food Products produces special-formula pet food. The company carries no inventories. The master budget calls for the company to manufacture and sell 198,000 cases at a budgeted price of $60 per case this year. The standard direct cost sheet for one case of pet food follows: Direct materials (3 pounds @ $2) $ 6 Direct labor (0.25 hours @ $32) 8 Variable overhead is applied based on direct labor-hours. The variable overhead rate is $16 per direct labor-hour. The fixed overhead rate (at the master budget level of activity) is $10 per unit. All nonmanufacturing costs are fixed and are budgeted at $2.2 million for the coming year. At the end of the year, the costs analyst reported that the sales activity variance for the year was $336,000 favorable. The following is the actual income statement (in thousands of dollars) for the year for Golden Food Products: Sales revenue $ 14,300 Less variable costs Direct materials 1,346 Direct labor 1,577 Variable overhead 840 Total variable costs $ 3,763 Contribution margin $ 10,537 Less fixed costs Fixed manufacturing overhead 2,085 Nonmanufacturing costs 2,138 Total fixed costs $ 4,223 Operating profit $ 6,314 Required: Prepare a profit variance analysis. Note: Enter your answers in thousands of dollars. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Golden Food Products produces special-formula pet food. The company carries no inventories. The master budget calls for the company to manufacture and sell 198,000 cases at a budgeted price of $60 per case this year. The standard direct cost sheet for one case of pet food follows:

Direct materials	(3 pounds @ $2)	$ 6
Direct labor	(0.25 hours @ $32)	8

Variable overhead is applied based on direct labor-hours. The variable overhead rate is $16 per direct labor-hour. The fixed overhead rate (at the master budget level of activity) is $10 per unit. All nonmanufacturing costs are fixed and are budgeted at $2.2 million for the coming year.

At the end of the year, the costs analyst reported that the sales activity variance for the year was $336,000 favorable.

The following is the actual income statement (in thousands of dollars) for the year for Golden Food Products:

Sales revenue	$ 14,300
Less variable costs
Direct materials	1,346
Direct labor	1,577
Variable overhead	840
Total variable costs	$ 3,763
Contribution margin	$ 10,537
Less fixed costs
Fixed manufacturing overhead	2,085
Nonmanufacturing costs	2,138
Total fixed costs	$ 4,223
Operating profit	$ 6,314

Required:

Prepare a profit variance analysis.

Note: Enter your answers in thousands of dollars. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.