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 470,000 units)						Master Budget (based on budgeted orders for 520,000 units)
Sales revenue		$	4,988,000					$	5,200,000
Less
Variable costs
Materials			1,540,000						1,560,000
Direct labor			296,000						364,000
Variable overhead			676,400						676,000
Variable marketing and administrative			508,000						520,000
Total variable costs		$	3,020,400					$	3,120,000
Contribution margin		$	1,967,600					$	2,080,000
Less
Fixed costs
Manufacturing overhead			992,800						962,000
Marketing			308,000						308,000
Administrative			224,000						182,000
Total fixed costs		$	1,524,800					$	1,452,000
Operating profits		$	442,800					$	628,000

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

Osage Inc.
Profit variance Analysis
	Actual	Manufacturing Variances		Marketing and Administrative variances		Sales Price Variance		Flexible Budget	Sales Activity Variance		Master Budget
	(a)							(b) = [(c)/520000] X 470000			(c)
Number of Orders	4,70,000							4,70,000			5,20,000
Sales Revenue	$       49,88,000					$   2,88,000	F	$               47,00,000	$         5,00,000	U	$       52,00,000
Less Variable Expenses:
Material	$       15,40,000	$   1,30,000	U					$               14,10,000	$         1,50,000	F	$       15,60,000
Direct Labor	$          2,96,000	$      33,000	F					$                  3,29,000	$            35,000	F	$          3,64,000
Variable Overhead	$          6,76,400	$      65,400	U					$                  6,11,000	$            65,000	F	$          6,76,000
Variable Marketing and Administration	$          5,08,000			$          38,000	U			$                  4,70,000	$            50,000	F	$          5,20,000
Total Variable Costs	$       30,20,400	$   1,62,400	U	$          38,000	U			$               28,20,000	$         3,00,000	F	$       31,20,000
Contribution margin	$       19,67,600	$   1,62,400	U	$          38,000	U	$   2,88,000	F	$               18,80,000	$         2,00,000	U	$       20,80,000
Less Fixed Expenses:
Manufacturing Overhead	$          9,92,800	$      30,800	U					$                  9,62,000	$                      -	None	$          9,62,000
Marketing	$          3,08,000			$                   -	None			$                  3,08,000	$                      -	None	$          3,08,000
Administration	$          2,24,000			$          42,000	U			$                  1,82,000	$                      -	None	$          1,82,000
Total Fixed Costs	$       15,24,800	$      30,800	U	$          42,000	U			$               14,52,000	$                      -	None	$       14,52,000
Operating Profits	$          4,42,800	$   1,93,200	U	$          80,000	U	$   2,88,000	F	$                  4,28,000	$         2,00,000	U	$          6,28,000