Crafts Inc., is a manufacturer of furniture. The company has 2 responsibility centers: Production and Selling and Distribution. Production and administration are cost centers while Selling and Distribution is a profit center. Presented below are the budgeted and actual contribution income statement for October along with applicable unit information. Budgeted unit information: Units 900 Sale price per unit $250 Direct material per unit $50 Direct labor per unit $20 Variable manufacturing overhead per unit $15 Variable selling and distribution per unit 60 Actual Units: 1,000 Craft Inc. Budgeted Contribution Income Statement For Month of October Sales $ 225,000 Less Variable costs Variable cost of goods sold: Direct materials $ 45,000 Direct labor 18,000 Manufacturing overhead 13,500 $ 76,500 Selling and distribution 54,000 (130,500) Contribution Margin 94,500 Less Fixed Costs: Manufacturing overhead 40,000 Selling and Distribution 30,000 (70,000) Net Income 24,500 Craft Inc. Actual Contribution Income Statement For Month of October Sales $ 275,000 Less Variable costs Variable cost of goods sold: Direct materials $ 50,000 Direct labor 25,000 Manufacturing overhead 20,000 $ 95,000 Selling and distribution 88,000 (183,000) Contribution Margin 92,000 Less Fixed Costs: Manufacturing overhead 38,000 Selling and Distribution 40,000 (78,000) Net Income(Loss) 14,000 Required: 1. Prepare a flexible budget performance report for Production that compares actual and allowed costs. 2. Prepare a flexible budget performance report for selling and distribution that compares actual and allowed costs. 3. Determine the revenue variance. 4. Determine the sales price variance. 5. Determine the sales volume variance. 6. Explain to management the areas that should be investigated. You should also include why the actual income is less than budgeted Explain why you picked these areas to look at.
| Crafts Inc., is a manufacturer of furniture. | ||||||||||||
| The company has 2 responsibility centers: Production and Selling and Distribution. | ||||||||||||
| Production and administration are cost centers while Selling and Distribution is a profit center. | ||||||||||||
| Presented below are the budgeted and actual contribution income statement for October along with applicable unit information. | ||||||||||||
| Budgeted unit information: | ||||||||||||
| Units | 900 | |||||||||||
| Sale price per unit | $250 | |||||||||||
| Direct material per unit | $50 | |||||||||||
| Direct labor per unit | $20 | |||||||||||
| Variable manufacturing overhead per unit | $15 | |||||||||||
| Variable selling and distribution per unit | 60 | |||||||||||
| Actual Units: | 1,000 | |||||||||||
| Craft Inc. | ||||||||||||
| Budgeted Contribution Income Statement | ||||||||||||
| For Month of October | ||||||||||||
| Sales | $ 225,000 | |||||||||||
| Less Variable costs | ||||||||||||
| Variable cost of goods sold: | ||||||||||||
| Direct materials | $ 45,000 | |||||||||||
| Direct labor | 18,000 | |||||||||||
| Manufacturing overhead | 13,500 | $ 76,500 | ||||||||||
| Selling and distribution | 54,000 | (130,500) | ||||||||||
| Contribution Margin | 94,500 | |||||||||||
| Less Fixed Costs: | ||||||||||||
| Manufacturing overhead | 40,000 | |||||||||||
| Selling and Distribution | 30,000 | (70,000) | ||||||||||
| Net Income | 24,500 | |||||||||||
| Craft Inc. | ||||||||||||
| Actual Contribution Income Statement | ||||||||||||
| For Month of October | ||||||||||||
| Sales | $ 275,000 | |||||||||||
| Less Variable costs | ||||||||||||
| Variable cost of goods sold: | ||||||||||||
| Direct materials | $ 50,000 | |||||||||||
| Direct labor | 25,000 | |||||||||||
| Manufacturing overhead | 20,000 | $ 95,000 | ||||||||||
| Selling and distribution | 88,000 | (183,000) | ||||||||||
| Contribution Margin | 92,000 | |||||||||||
| Less Fixed Costs: | ||||||||||||
| Manufacturing overhead | 38,000 | |||||||||||
| Selling and Distribution | 40,000 | (78,000) | ||||||||||
| Net Income(Loss) | 14,000 | |||||||||||
| Required: | ||||||||||||
| 1. Prepare a flexible budget performance report for Production that compares actual and allowed costs. | ||||||||||||
| 2. Prepare a flexible budget performance report for selling and distribution that compares actual and allowed costs. | ||||||||||||
| 3. Determine the revenue variance. | ||||||||||||
| 4. Determine the sales price variance. | ||||||||||||
| 5. Determine the sales volume variance. | ||||||||||||
| 6. Explain to management the areas that should be investigated. You should also include why the actual income is less than budgeted Explain why you picked these areas to look at. | ||||||||||||
Related questions
Problem 1:
Peaceful Corporation manufactures figurines based on thefollowing information.
| Standard costs | $20 | |
| Materials (4 ounces at $5) | $8 | |
| Direct labor (1 hour per unit) | $4 | |
| Variable overhead (based on direct labor hours) | ||
| Fixed overhead budget | $19,000 | |
| Actual results and costs | ||
| Materials purchased | ||
| Units | 9,000 | |
| Cost | $39,600 | |
| Materials used in production | ||
| Finished product units | 2,000 | |
| Raw material (ounces) | 8,200 | |
| Direct labor hours | 2,000 | |
| Direct labor cost | $20,000 | |
| Variable overhead costs | $5,980 | |
| Fixed overhead costs | $19,500 |
Required:
- Prepare a performance report for Peaceful using the following headings.
- Actual Production Costs
- Flexible Budget Costs
- Flexible Budget Variances
- Compute the following variances (show calculations).
- Materials usage variance
- Labor rate variance
- Labor efficiency variance
- Variable overhead spending variance
- Variable overhead efficiency variance
- Fixed overhead budget variance
- Give one possible explanation for each of the six variances computed in part b.
Problem 2:
The following is the current variable costing income statementfor Dolly Corporation.
| Sales (5,000 units) | $100,000 | |
| Variable expenses Cost of goods sold | $35,000 | |
| Selling (10% of sales) | $10,000 | $45,000 |
| Contribution margin | $55,000 | |
| Fixed expenses | ||
| Manufacturing overhead | $24,000 | |
| Administrative | $12,500 | $36,500 |
| Operating income | $18,500 |
Below is the following information on operations for DollyCorporation.
| Beginning inventory (units) | 0 |
| Units produced (units) | 6,000 |
| Manufacturing costs | |
| Direct labor (per unit) | $5.00 |
| Direct materials (per unit) | $2.30 |
| Variable overhead (per unit) | $2.40 |
Required:
Prepare an absorption costing income statement.
Problem 3:
The following information was compiled for two models of cellphones.
| 3G model | 4G model | Average | |
| Budgeted Contribution Margin | $80.00 | $120.00 | $95.25 |
| Budgeted Sales in Units | 28,000 | 18,000 | |
| Actual Sales in Units | 28,600 | 16,500 |
Required:
Calculate the sales mix variance. (Show your calculations.)
The information below representsthe beginning and ending inventory amounts along with theproduction and sales for the month in umbrella units
Beginning Inventory: 0 Umbrellas
Production: 80,000 Umbrellas
Sales: 60,000 Umbrellas
Ending Inventory: 20,000 Umbrellas
The Hampshire Company manufactures umbrellas that sell for$12.50 each. In 2014, the company made and sold 60,000 umbrellas.The company had fixed manufacturing costs of $216,000. It also hadfixed costs for administration of $79,525. The per-unit costs ofeach umbrella are as follows:
Using the information
Prepare a variable costing income statement.
Prepare an absorption costing income statement.
Direct Materials: $3.00
Direct Labor: $1.50
Variable Manufacturing Overhead:$0.40
Variable Selling Expenses: $1.10
| Requirement 1 | ||||
| Hampshire Company | ||||
| Variable Costing IncomeStatement | ||||
| Units | $ | |||
| Sales | X | $ | $ | |
| Variable Cost of Goods Sold: | ||||
| Beginning Inventory | $ | |||
| Direct Materials | X | $ | $ | |
| Direct Labor | X | $ | $ | |
| Manufacturing Overhead | X | $ | $ | |
| Total Variable Costs | $ | |||
| Cost of Good Available for Sale | $ | |||
| Deduct Ending Inventory | X | $ | $ | |
| Variable Costs of GoodsSold | $ | |||
| Variable Selling Costs | X | $ | $ | $ |
| Contribution Margin | $ | |||
| Fixed Costs: | ||||
| Fixed Manufacturing Costs | $ | |||
| Fixed Administrative Costs | $ | |||
| Operating Income | $ | |||
| Requirement 2 | ||||
| Hampshire Company | ||||
| Absorption Costing IncomeStatement | ||||
| Units | $ | |||
| Sales | X | $ | $ | |
| Variable Cost of Goods Sold: | ||||
| Beginning Inventory | $ | |||
| Direct Materials | X | $ | $ | |
| Direct Labor | X | $ | $ | |
| Manufacturing Overhead | X | $ | $ | |
| Total Variable Costs | $ | |||
| Allocated Fixed Manufacturing Costs | X | $ | $ | |
| Cost of Good Available for Sale | $ | |||
| Deduct Ending Inventory | X | $ | $ | |
| Costs of GoodsSold | $ | |||
| Gross Margin | $ | |||
| Fixed Costs: | ||||
| Variable Selling Costs | X | $ | $ | |
| Fixed Administrative Costs | $ | |||
| Operating Income | $ | |||
Phoenix Companyâs 2017 master budget included the following fixed budget report. It is based on an expected production and sales volume of 15,000 units.
| PHOENIX COMPANY Fixed Budget Report For Year Ended December 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales | $ | 3,150,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of goods sold | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Direct materials | $ | 945,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Direct labor | 225,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Machinery repairs (variable cost) | 45,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DepreciationâPlant equipment (straight-line) | 300,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Utilities ($45,000 is variable) | 195,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Plant management salaries | 200,000 | 1,910,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross profit | 1,240,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Selling expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Packaging | 90,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shipping | 105,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales salary (fixed annual amount) | 235,000 | 430,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Advertising expense | 125,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Salaries | 230,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Entertainment expense | 85,000 | 440,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income from operations | $ | 370,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The companyâs business conditions are improving. One possible result is a sales volume of 18,000 units. The company president is confident that this volume is within the relevant range of existing capacity. How much would operating income increase over the 2017 budgeted amount of $370,000 if this level is reached without increasing capacity?
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An unfavorable change in business is remotely possible; in this case, production and sales volume for 2017 could fall to 12,000 units. How much income (or loss) from operations would occur if sales volume falls to this level? (Enter any loss with minus sign.)
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