Question

Stuart Publications established the following standard price and costs for a hardcover picture book that the company produces.

Standard price and variable costs
Sales price	$	36.00
Materials cost		8.20
Labor cost		4.10
Overhead cost		5.90
Selling, general, and administrative costs		6.80
Planned fixed costs
Manufacturing overhead	$	134,000
Selling, general, and administrative		50,000

Stuart planned to make and sell 33,000 copies of the book.

Required:

a. - d. Prepare the pro forma income statement that would appear in the master budget and also flexible budget income statements, assuming production volumes of 32,000 and 34,000 units. Determine the sales and variable cost volume variances, assuming volume is actually 34,000 units. Indicate whether the variances are favorable (F) or unfavorable (U). (Select "None" if there is no effect (i.e., zero variance).)

Answer 1

Solution:

Stuart Publication
Income Statement
Particulars	Flexible Budget			Flexible Budget For
	Variable amount per unit	Total Fixed Cost	Master budget - 33000 units	Volume - 32000 units	Volume - 34000 units
Sales	$36.00		$11,88,000.00	$11,52,000.00	$12,24,000.00
Variable costs:
Material Cost	$8.20		$2,70,600.00	$2,62,400.00	$2,78,800.00
Labor cost	$4.10		$1,35,300.00	$1,31,200.00	$1,39,400.00
Overhead cost	$5.90		$1,94,700.00	$1,88,800.00	$2,00,600.00
Selling, general and admin. Costs	$6.80		$2,24,400.00	$2,17,600.00	$2,31,200.00
Total Variable costs	$25.00		$8,25,000.00	$8,00,000.00	$8,50,000.00
Contribution margin	$11.00		$3,63,000.00	$3,52,000.00	$3,74,000.00
Fixed Costs:
Manufacturing Overhead		$1,34,000.00	$1,34,000.00	$1,34,000.00	$1,34,000.00
Selling, general and admin.		$50,000.00	$50,000.00	$50,000.00	$50,000.00
Total Fixed Costs		$1,84,000.00	$1,84,000.00	$1,84,000.00	$1,84,000.00
Net Operating Income			$1,79,000.00	$1,68,000.00	$1,90,000.00

Sale volume Variance = (Actuals sales - budgeted sales) * Budgeted selling Price

= (34000- 33000) *$36 = $36000 F

Variable cost Variance = (Budgeted sales - Actual sales) * Budgeted Total variable cost per unit

= (33000 - 34000) * $25 = $25000 U