Osage, Inc., manufactures and sells lamps. The company produces only when it receives orders and, therefore, has no inventories. The following information is available for the current month: Actual (based on actual orders for 450,000 units) Master Budget (based on budgeted orders for 480,000 units) Sales revenue $ 4,966,000 $ 4,800,000 Less Variable costs Materials 1,536,000 1,536,000 Direct labor 250,000 312,000 Variable overhead 627,400 576,000 Variable marketing and administrative 466,000 480,000 Total variable costs $ 2,879,400 $ 2,904,000 Contribution margin $ 2,086,600 $ 1,896,000 Less Fixed costs Manufacturing overhead 578,300 550,000 Marketing 185,000 185,000 Administrative 125,000 105,000 Total fixed costs $ 888,300 $ 840,000 Operating profits $ 1,198,300 $ 1,056,000 Required: Prepare a sales activity variance analysis for Osage, Inc. (Do not round intermediate calculations. 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.)
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Osage, Inc., manufactures and sells lamps. The company produces only when it receives orders and, therefore, has no inventories. The following information is available for the current month:
| Actual (based on actual orders for 450,000 units) | |||||||||||
| Sales revenue | $ | 4,966,000 | $ | 4,800,000 | |||||||
| Less | |||||||||||
| Variable costs | |||||||||||
| Materials | 1,536,000 | 1,536,000 | |||||||||
| Direct labor | 250,000 | 312,000 | |||||||||
| Variable |
627,400 | 576,000 | |||||||||
| Variable marketing and administrative | 466,000 | 480,000 | |||||||||
| Total variable costs | $ | 2,879,400 | $ | 2,904,000 | |||||||
| Contribution margin | $ | 2,086,600 | $ | 1,896,000 | |||||||
| Less | |||||||||||
| Fixed costs | |||||||||||
| Manufacturing overhead | 578,300 | 550,000 | |||||||||
| Marketing | 185,000 | 185,000 | |||||||||
| Administrative | 125,000 | 105,000 | |||||||||
| Total fixed costs | $ | 888,300 | $ | 840,000 | |||||||
| Operating profits | $ | 1,198,300 | $ | 1,056,000 | |||||||
Required:
Prepare a sales activity
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