Chapter 16, Problem 52P

Find Missing Data for Profit Variance Analysis

Required

Find the values of the missing items (a) through (q). Assume that the actual sales volume equals actual production volume. (There are no inventory level changes.)

To determine

Find the missing data for profit variance analysis.

Explanation of Solution

Profit variance analysis:

The analysis that studies the difference between the actual operating profit and the standard operating profit is called the profit variance analysis.

Prepare profit variance analysis:

	Actual Revenue & Costs	Manufacturing variance	Marketing and administrative variance	Sales price variance	Flexible budget	Sales Activity Variance	Master budget
Units Produced	2,250				2,250	150U(1)	2,400
Sales revenue	$117,000			$4,500U(2)	$121,500	$8,100(13)	$129,600(3)
Less: Variable costs
Manufacturing	$30,600(7)	$3,600F			$34,200(5)	$2,280F	$36,480(6)
Marketing &administrative costs	$12,000(8)		$1,500F(11)		$13,500(10)	$900F	$14,400
Contribution margin	$74,400	$3,600F	$1,500F	$4,500U	$73,800	$4,920U	$78,720

Table: (1)

Working Note 1:

Sales activity variance units and sales revenue:

$\begin{array}{c}\text{Sales activity variance = Flexible budget - Master budget}\\ \text{= 2,250 units - 2,400 units}\\ \text{= 150U}\end{array}$

Working Note 2:

$\begin{array}{c}\text{Sales price variance = Actual revenue - flexible budget revenue}\\ \text{= \$117,000 - \$121,500}\\ \text{= \$4,500U}\end{array}$

Working Note 3:

$\begin{array}{c}\text{Budgeted sales revenue = }\left(\text{Flexible budget sales revenue }÷\text{ units}\right)\times \text{ budgeted units}\\ \text{= \$121,500 }÷\text{ 2,250 }\times \text{ 2,400}\\ \text{= \$54 }\times \text{ 2,400}\\ \text{= \$129,600}\end{array}$

Working Note 4:

$\begin{array}{c}\begin{array}{l}\text{Budgeted variable }\\ \text{manufacturing cost per unit}\end{array})=\left(\frac{\text{Sales activity variance}}{\text{(Budgeted units - Flexible budget units)}}÷\right)\\ =\text{ \$2,280F }÷\text{ (2,400-2,500)}\\ \text{=}\text{\$15}\text{.20}\\ \end{array}$

Working Note 5:

$\begin{array}{c}\text{Flexible budget manufacturing cost = Budgeted unit per cost }\times \text{ Flexible units}\\ \text{= \$15}\text{.20(4) }\times \text{ 2,250 units}\\ \text{= \$34,200}\end{array}$

Working Note 6:

$\begin{array}{c}\text{Master budget manufacturing cost = Budgeted unit per cost }\times \text{ Master budget units}\\ \text{= \$15}\text{.20 }\times \text{ 2,400 units}\\ \text{= \$36,480}\end{array}$

Working Note 7:

$\begin{array}{c}\text{Actual variable manufacturing cost = }\left(\begin{array}{l}\text{Flexible budget variable manufacturing cost }\\ \text{- Manufacturing variance}\end{array}\right)\\ \text{= \$34,200 - \$3,600F}\\ \text{= \$30,600}\end{array}$

Working Note 8:

$\begin{array}{c}\begin{array}{l}\text{Variable marketing }\\ \text{and administrative cost}\end{array})\text{ = }\left(\begin{array}{l}\text{Sales revenue - variable manufacturing cost }\\ \text{- Contribution margin}\end{array}\right)\\ \text{= \$117,000 - \$30,600(7) - \$74,400}\\ \text{= \$12,000}\end{array}$

Working Note 9:

$\begin{array}{c}\begin{array}{l}\text{Budgeted variable Marketing }\\ \text{and administrative cost per unit}\end{array})\text{= }\frac{\left(\begin{array}{l}\text{Master budget variable }\\ \text{administrative and marketing cost}\end{array}\right)}{\text{Budgeted units}}\\ \text{= \$14,400 }÷\text{ 2,400}\\ \text{= \$6}\end{array}$

Working Note 10:

$\begin{array}{c}\text{Flexible budget marketing and administrative cost = }\left(\begin{array}{c}\text{Budgeted unit per cost }\\ \times \text{ Flexible units}\end{array}\right)\\ \text{= \$6(9) }\times \text{ 2,250 units}\\ \text{= \$13,500}\end{array}$

Working Note 11:

$\begin{array}{c}\text{Variable marketing and administrative cost = Flexible - Budgeted}\text{sales activity variance}\\ \text{= \$13,500(10) - \$14,400}\\ \text{= \$900F}\end{array}$

Working Note 12:

$\begin{array}{c}\text{Marketing and administrative cost variance = Actual - flexible}\\ =\text{ \$12,000 - \$13,500}\\ \text{= \$1,500F}\end{array}$

Working Note 13:

$\begin{array}{c}\text{Sales activity variance sales revenue = Flexible - Budgeted}\\ \text{= \$121,500 - \$129,600(3)}\\ \text{= \$8,100U}\end{array}$