Question

Exercise 2-7 (With Variances). The president of Toblerone, Inc. has been reviewing the income statements of the two most recent months. She is puzzled because sales rose and profits fell in March, and she asks you, the controller, to explain. February March Sales (P30 per case) P 540,000 P 660,000 Standard cost of sales 270.000 330,000 Standard gross profit P 270.000 P330.000 Volume variance 40.000 (50,000) Selling and administrative expenses (150.000) (150.000) Income P160.000 P130,000 ==EEEEEE ======= The standard fixed cost per case is P10, based on normal capacity of 20,000 cases per month. Requirements: a. Determine the production volume for each month. b. Prepare the March income statement using variable costing.

Answer 1

2.71 Normal capacity Volume variance Standard fixed cost per case Production volume variance units February 20,000 40,000 10 4,000 March 20,000 -50,000 10 -5,000 a) Production units 16,000 25,000 Unfavorable volume variance is due to lower production units than normal capacity Favorable volume variance is due to higher production units than normal capacity Currency is P Standard Sales 660,000 Units sold 22,000 ($660,000/30) Standard fixed overheads 220,000 22,000* 10 Standards variable cost 110,000 Standard cost of sales 330,000 b) Currency is P Income Statement - Variable Costing Sales 660,000 Variable cost of goods sold 110,000 Contribution margin 550,000 Fixed cost Manufacturing overheads 200,000 Selling and administrative expenses 150,000 350,000 Net Profit 200,000 Currency is P 2-8 Income Statement - Direct Costing 20A Sales 2,000,000 Variable cost of goods sold 600,000 Variable marketing and general exp 200,000 800,000 Contribution margin 1,200,000 Fixed cost Cost of goods sold 200,000 Selling and administrative expenses 300,000 500,000 Net Profit 700,000 20B 2,500,000 750,000 250,000 1,000,000 1,500,000 200,000 300,000 500,000 1,000,000 Working notes: Cost of goods sold Cost of goods sold Sales 20A 950,000 2,500,000 20B Difference 800,000 150,000 2,000,000 500,000 Variable cost % Difference in COGS Difference in Sales 150,000 500,000 30.0% Calculation of Fixed cost Sales Variable cost % Variable COGS Fixed COGS 20A 2,500,000 30.0% 750.000 200,000 20B 2,000,000 a 30.0% b 600,000 a*b 200,000 Marketing and general expense 20A Marketing and general expense Sales 550,000 2,500,000 20B Difference 500,000 50,000 2,000,000 500,000 Variable cost % Difference in Marketing and gen expl Difference in Sales 50,000 500,000 10.0% Calculation of Fixed cost Sales Variable cost % Variable General and admin expensel Fixed General and admin expense 20A 2,500,000 10.0% 250,000 300,000 20B 2,000,000 a 10.0%b 200,000 a*b 300,000