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Category > Accounting Posted 23 May 2017 My Price 7.00

Solve for Master Budget Given Actual Results

A new accounting intern at Gibson Corporation lost the only copy of this period’s master budget. The CFO wants to evaluate performance for this period but needs the master budget to do so. Actual results for the period follow:

Sales volume	120,000 units
Sales revenue	$672,000
Variable costs
Manufacturing	147,200
Marketing and administrative	61,400
Contribution margin	$463,400
Fixed costs
Manufacturing	205,000
Marketing and administrative	113,200
Operating profit	$145,200

The company planned to produce and sell 108,000 units for $5 each. At that volume, the contribution margin would have been $380,000. Variable marketing and administrative costs are budgeted at 10 percent of sales revenue. Manufacturing fixed costs are estimated at $2 per unit at the normal volume of 108,000 units. Management notes, “We budget an operating profit of $1 per unit at the normal volume.”

Required

a. Construct the master budget for the period.

b. Prepare a profit variance analysis like the one in Exhibit 16.5.

Exhibit 16.5 Profit Variance Analysis, August—Bayou Division

	A	B	C	D	E	F	G	H	I	J		K	L	M
1		(1)	(2)			(3)		(4)		(5)		(6)		(7)
										Flexible				Master Budget
		Actual (based								Budget (based				(based on
		on actual				Marketing and				on actual		Sales		planned
		activity of	Manufacturing			Administrative		Sales Price		activity of		Activity		activity of
2		80,000 units)	Variances			Variances		Variance		80,000 units)		Variance		100,000 units)
3	Sales revenue	$ 840,000						$ 40,000	F	$ 800,000		$ 200,000	U	$ 1,000,000
4	Less
5	Variable costs
6	Variable manufacturing costs	329,680	$ 25,680	U	a					304,000		76,000	F	380,000
7	Variable selling and administrative	68,000				$ 4,000	F			72,000		18,000	F	90,000
8	Contribution margin	$ 442,320	$ 25,680	U		$ 4,000	F	$ 40,000	F	$ 424,000		$ 106,000	U	$	530,000
9	Fixed costs
10	Fixed manufacturing overhead	195,500	4,500	F						200,000		–0–			200,000
11	Fixed selling and administrative costs	132,320				7,680	F			140,000		–0–			140,000
12	Profit	$ 114,500	$ 21,180	U		$ 11,680	F	$ 40,000	F	$	84,000	$ 106,000	U	$	190,000
13
14	aThe individual cost variances are shown in Exhibit 16.11.
15

Exhibit 16.11 Variable Manufacturing Cost Variance Summary, August—Bayou Division

in Exhibit 16.5. The cost variance analysis just completed is a more detailed analysis of the variable production cost variance derived in Exhibit 16.5.

A summary of this nature is useful for reporting variances to high-level managers. It provides both an overview of variances and their sources. When used for reporting, the computations at the right of Exhibit 16.11 usually are replaced with a brief explanation of the cause of the variance.

Management might want more detailed information about some of the variances. Extending each variance branch in Exhibit 16.11 to show variances by product line, department, or other categories can provide this additional detail.

Answers

Alpha Geek

(8)

Status NEW Posted 23 May 2017 06:05 PM My Price 7.00

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Attachments

file 1495563254-Answer.docx preview (657 words )

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