Question

Question 3 a) Marcia’s Leather Knits makes and sells leather jackets. Given the following budget and actual data, complete the company’s comprehensive performance report (assume static budget of $1,200 units and fixed expenses identical to flexible budget). 2020 Budget data Average sale price per jacket $500 Sales volume 1,500 Supervisor salary $80,000 Number of supervisors 2 Worker hourly rate $20 Materials per jacket $100 Labour hours required per jacket 8 Sales commission per jacket $50 Factory space rental $3,000 per month Retail space rental $2,500 per month Janitorial services $1,000 per month 2020 Actual data Sales revenue $694,200 Sales volume 1,390 Materials per jacket $96.15 Supervisor salaries $152,000 Worker wages $226,223 Sales commissions $70,500 Janitorial services $13,000 Factory space rental $36,000 Retail space rental $30,000 b) Make some conclusions about the company’s performance. Discuss in detail what was done well and what could be improved in 2021.

Answer 1

Marcia's Leather Knits Flexible Budget Performance Report Flexible Sales - Actual Flexible Budget Volume Results Budget Variance Variance 1,390 None 1,390 110 Unfavorable $694,200 $800 Unfavorable $695,000 $55,000 Unfavorable Static Budget 0 1,500 $750,000 Unit sales Sales Revenue Less: Variable expenses Direct material Direct labor Sales commission Total Variable costs Contribution Margin Less: Fixed expenses Supervisor salary Factory rental Retail space rental Janitorial services Total fixed expenses Operating Income $133,649 $226,223 $70,500 $430,372 $263,829 $5,352 Favorable $3,823 Unfavorable $1,000 Unfavorable $529 Favorable $272 Unfavorable $139,000 $222,400 $69,500 $430,900 $264,100 $11,000 Favorable $17,600 Favorable $5,500 Favorable $34,100 Favorable $20,900 Unfavorable $150,000 $240,000 $75,000 $465,000 $285,000 $152,000 $36,000 $30,000 $13,000 $231,000 $32,829 $72,000 Unfavorable $0 Not applicable $0 Not applicable $1,000 Unfavorable $73,000 Favorable $73,272 Unfavorable $80,000 $36,000 $30,000 $12,000 $158,000 $106,100 $0 Not applicable $80,000 $0 Not applicable $36,000 $0 Not applicable $30,000 $0 Not applicable $12,000 $0 Not applicable $158,000 $20,900 Unfavorable $127,000 Budgeted labor cost per unit - 8 labor hours per unit * $20 per hour = $160 per unit Done well There is savings on account on Direct material due to lower material unit cost. The purchase prices is favourable Factory rental and Retail space rental expense as per budget What could improve in 2021 The Direct labor cost and sales commission is higher than budget. The per unit cost should be as per budget so that actual expenses are in line with budgeted cost Supervisor salaries incurred is far higher than budget which should as per budget of 2 supervisors Janitorial services spend should be as per budget