Question

Osage, Inc., manufactures and sells lamps. The company produces only when it receives orders and, therefore, has no inventories. The following information is available for the current month:

  

	Actual (based on actual orders for 457,000 units)						Master Budget (based on budgeted orders for 494,000 units)
Sales revenue		$	4,975,000					$	4,940,000
Less
Variable costs
Materials			1,475,000						1,482,000
Direct labor			283,000						345,800
Variable overhead			675,100						642,200
Variable marketing and administrative			482,000						494,000
Total variable costs		$	2,915,100					$	2,964,000
Contribution margin		$	2,059,900					$	1,976,000
Less
Fixed costs
Manufacturing overhead			990,200						960,700
Marketing			295,000						295,000
Administrative			211,000						180,700
Total fixed costs		$	1,496,200					$	1,436,400
Operating profits		$	563,700					$	539,600

 

Required:

Prepare a profit variance analysis for Osage, Inc. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

Answer 1

flexible budget column

sales revenue 457,000(from actual question)*(4,940,000(master budget column)/ 494,000(master budget question)= 4,570,000 

variable costs: 

materials 457,000*(1,482,000/ 494,000)= 1,371,000

direct labor 457,000*(345,800/ 494,000)= 319,900 

Variable overhead: 457,000*(642,200/ 494,000)= 594,100 

Variable marketing and administrative: 457,000*(494,000/ 494,000)= 457,000 

Total variable costs 457,000*(2,964,000/ 494,000)= 2,742,000

Contribution margin 457,000*(1,976,000/ 494,000)= 1,828,000 

Fixed costs:

Manufacturing overhead 960,700

Marketing 295,000

Administrative 180,700

Total fixed costs 960,700+ 295,000+ 180,700= 1,436,400

Operating profits 1,828,000- 1,436,400= 391,600

sales activity variable column

flexible budget - master budget, except all fixed cost section

sales price variance

sales revenue 4,975,000(actual)- 4,570,000(flexible)= 405,000 F

Cm= 405,000 F

operating profits= 405,000 F

market and administrative variance

variable costs:

Variable marketing and administrative 482,000(actual)- 457,000(flexible)= 25,000u

total variable cost  25,000 U

CM= 25,000 U

Fixed Costs:

administrative 211,000- 180,700= 30,300 U

total fixed cost= 30,300 U

operating profits 25,000+ 30,300= 55,300 U

Manufacturing variances

variable costs:

material 1,475,000(actual)- 1,371,000(flexible)= 104,000 U

direct labor= 283,000- 319,900= 36,900 F

variable overhead= 675,100- 594,100= 81,000 U

total variable cost= 104,000- 36,900+ 81,000= 148,100 U

CM= 148,100 U

fixed costs:

manufacturing overhead 990,200- 960,700= 29,500 U

total fixed cost= 29,500 U

operating profits 148,100+ 29,500= 177,600

Answer 2

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