Question

Problem 15-20 Determining sales and variable cost volume variances LO 15-2, 15-3, 15-4

Zachary Publications established the following standard price and costs for a hardcover picture book that the company produces.

Standard price and variable costs
Sales price	$	36.50
Materials cost		8.70
Labor cost		4.20
Overhead cost		5.80
Selling, general, and administrative costs		6.90
Planned fixed costs
Manufacturing overhead	$	129,000
Selling, general, and administrative		51,000

Zachary planned to make and sell 29,000 copies of the book.

Required:

a. - d. Prepare the pro forma income statement that would appear in the master budget and also flexible budget income statements, assuming production volumes of 28,000 and 30,000 units. Determine the sales and variable cost volume variances, assuming volume is actually 30,000 units. Indicate whether the variances are favorable (F) or unfavorable (U). (Select "None" if there is no effect (i.e., zero variance).)

Master Budget Flexible Budgets Volume Variances Number of units 29,000 28,000 30,000 Variable manufacturing costs None U 0 0 0 Fixed costs $ 0 0 0

Answer 1

Zachary (The Company) Sale Price 36.5 Material Cost 8.7 Labor Cost Overhead Cost Selling, General and Adm Cost 4.2 5.8 6.9 Planned Fixed Cost Manufacturing Overhead Selling, General and Adm. 129,000 Cost 51,000 Not Volume Variance Master е Flexible Budget Budget No. 30,00 28,00 0 28,000 Number of Units Sales (No.of units Sale Price) 29,000 30,000 1,095,00 1,022,000 1,058,500 0 U 1 Variable Manufacturing Cost Material Cost 252,300 261,000 126,000 243,600 2 Labor Cost 121,800 117,600 3 Overhead Cost Selling, General and Adm. Cost 162,400 168,200 174,000 4 207,000 768,00 200,100 193,200 5 Total Manufacturing Cost Contribution (Sales- VC) 742,400 716,800 327,00 316,100 305,200 Fixed Cost Manufacturing Overhead Selling, General and Adm. Cost 129,000 129,000 129,000 51,000 51,000 51.000 180,00 180,000 180,000 Total Fixed Cost Net Profit (Contribution-F.C.) 147,00 136,100 125,200 Note No. 1 (Sales Volume Variance) The formula is: (Sales Price Budgeted Volume)-(Sales price Actual Volume) So, For Qty. 28,000 the variance is (36.5*28000)-(36.5*30000) = (73,000) (Unfavorable)

For Qty. 30,000 the variance is (36.5*30000)-(36.5*30000) = Nil, (None) Note No. 2: We can't calculate the variable cost variance as we need Qty. of material used for 1 unit of finished goods to be manufactured, Labor hours to be used to manufacture 1 unit of finished goods, overhead cost volume and other expense volume. Further the following formula can be used to calculate all variable costs (Actual Volume Budgeted Volume)*Standard Price, If the amount is negative then it is unfavorable or vice versa.