Question
In: Accounting
. manufactures ONE PRODUCT. The company prepared a master budget for 2016 which included the following...
. manufactures ONE PRODUCT. The company prepared a master budget for 2016 which included the following pro-forma income statement, which is based on an expected production and sales volume of 15,000 units.
Mississippi Corporation
Budgeted Income Statement
For the Year Ending December 31, 2019
| Sales | $3,000,000 |
| Cost of Goods Sold: | |
| Direct Materials | $975,000 |
| Direct Labor | $225,000 |
| Machinery Repairs (Variable) | $60,000 |
| Depreciation - Plant Equipment | $300,000 |
| Utilities ($45,000 is variable) |
$195,000 |
| Plant Management Salaries | $200,000 |
| Cost of Goods Sold | $1,955,000 |
| Gross Profit | $1,045,000 |
| Selling Expenses: | |
| Packaging (Variable) | $75,000 |
| Shipping (Variable) | $105,000 |
| Sales Salaries (Fixed Annual Amount) | $250,000 |
| $430,000 | |
| General and Aministrative Expenses: | |
| Advertising Expense (Fixed) | $125,000 |
| Salaries (Fixed) | $241,000 |
| Entertainment Expense | $90,000 |
| $456,000 | |
| Income From Operations | $159,000 |
The actual income statement for the year was as follows, based on 18,000 units were actually produced and sold:
Mississippi Corporation
Budgeted Income Statement
For the Year Ending December 31, 2019
| Sales | $3,648,000 |
| Cost of Goods Sold: | |
| Direct Materials | $1,185,000 |
| Direct Labor | $278,000 |
| Machinery Repairs (Variable) | $63,000 |
| Depreciation - Plant Equipment | $300,000 |
| Utilities ($45,000 is variable) | $200,500 |
| Plant Management Salaries | $210,000 |
| Cost of Goods Sold | $2,236,500 |
| Gross Profit | $1,411,500 |
| Selling Expenses: | |
| Packaging (Variable) | $87,500 |
| Shipping (Variable) | $118,500 |
| Sales Salaries (Fixed Annual Amount) | $268,000 |
| $474,000 | |
| General and Administrative Expenses: | |
| Advertising Expense (Fixed) | $132,000 |
| Salaries (Fixed) | $241,000 |
| Entertainment Expense (Fixed) | $93,500 |
| $466,500 | |
| Income from Operations |
1) Prepare a comprehensice and meaningful performance report for the year. Your report should show a) the static budget variance, b) the volume variance and c) the flexible budget variance.
2) Provide a summary of your findings regarding the Company's results for the period. Which of these variances are considered "controllable" and which are not?
3) Assuming that the company manufactures ONE PRODUCT, explain the company’s SALES performance.
4) If, instead, the company manufactured MULTIPLE PRODUCTS, what might have accounted for the variances noted in #3 above?
NOW ASSUME that the following standards have been established for the produciton of one unit:
Direct
materials
5 lbs @ $13 per lb.
Direct
Labor
1 hour @ $15 per hr.
The actual results shown above reflect actual materials usage of 118,500 pounds and actual labor of 22,240 hours.
5) What is meant by a standard, as used above? WHY are these important?
6) Further break down the Flexible Budget Variance (Standard Cost Variance) by computing and analyzing the direct materials price and usage (quantity) variances AND the direct labor rate and efficiency variances. Explain TWO possible causes for each.
7) NOW ASSUME that the company uses a standard costing system for recording product costs. The company recognizes direct materials variances at the time of usage. Journalize the following, assuming that the company uses normal costing AND standard costing:
a) Direct materials purchases, on account
b) Direct materials payments to vendors
c) Direct materials usage in production
d) Direct materials variances
e) Direct labor incurrence in production
f) Payments to direct labor employees
8) Provide the journal entries required to dispose of the variances computed in #8(d) and #8(g) above, assuming that these amounts are considered immaterial.
9) NOW ASSUME that the variances computed above are considered material. Would this change the entry? How would this be handled? What additional information would be needed?
Expert Answer
Solutions
Expert Solution
| Mississippi Corporation | ||||||||
| PERFORMANCE/VARIANCE ANALYSIS REPORT | ||||||||
| For the Year Ending December 31, 2019 | Budget | Actual | Static Budget Variance | Variable Components | Budget | Flexible Budget Variance | Volume Variance | |
| (Static) | (Actual - Budget) | Budget per unit | (Flexible) | |||||
| (B) | (A) | C = A-B | D = B/15000 | E = D x 18000 | F = A-E | G = C-F | ||
| Actual - Budget | Variable Budget Figures/ | Variable Budget Figures per unit | Actual - Flexible Budget | Static Budget Varaince | ||||
| Sales Qty ( in units) | 15000 | 18000 | Budgeted Qty | X Actual Qty | (-) Flexible Budget Variance | |||
| No change in Fixed Costs | ||||||||
| Sales | $30,00,000 | $36,48,000 | $6,48,000 | $200 | $36,00,000 | $48,000 | $6,00,000 | |
| Cost of Goods Sold: | ||||||||
| Direct Materials | $9,75,000 | $11,85,000 | $2,10,000 | $65 | $11,70,000 | $15,000 | $1,95,000 | |
| Direct Labor | $2,25,000 | $2,78,000 | $53,000 | $15 | $2,70,000 | $8,000 | $45,000 | |
| Machinery Repairs (Variable) | $60,000 | $63,000 | $3,000 | $4 | $72,000 | ($9,000) | $12,000 | |
| Depreciation - Plant Equipment | $3,00,000 | $3,00,000 | $0 | $3,00,000 | $0 | $0 | ||
| Utilities ($45,000 is variable) | $45,000 | $45,000 | $0 | $3 | $54,000 | ($9,000) | $9,000 | |
| Utilities (Fixed) | $1,50,000 | $1,55,500 | $1,50,000 | $5,500 | ($5,500) | |||
| Plant Management Salaries | $2,00,000 | $2,10,000 | $10,000 | $2,00,000 | $10,000 | $0 | ||
| Cost of Goods Sold | $19,55,000 | $22,36,500 | $2,81,500 | $22,16,000 | $20,500 | $2,61,000 | ||
| Gross Profit | $10,45,000 | $14,11,500 | $3,66,500 | $13,84,000 | $27,500 | $3,39,000 | ||
| Selling Expenses: | $0 | $0 | ||||||
| Packaging (Variable) | $75,000 | $87,500 | $12,500 | $5 | $90,000 | ($2,500) | $15,000 | |
| Shipping (Variable) | $1,05,000 | $1,18,500 | $13,500 | $7 | $1,26,000 | ($7,500) | $21,000 | |
| Sales Salaries (Fixed Annual Amount) | $2,50,000 | $2,68,000 | $18,000 | $2,50,000 | $18,000 | $0 | ||
| $4,30,000 | $4,74,000 | $44,000 | $4,66,000 | $8,000 | $36,000 | |||
| General and Aministrative Expenses: | $0 | $0 | ||||||
| Advertising Expense (Fixed) | $1,25,000 | $1,32,000 | $7,000 | $1,25,000 | $7,000 | $0 | ||
| Salaries (Fixed) | $2,41,000 | $2,41,000 | $0 | $2,41,000 | $0 | $0 | ||
| Entertainment Expense (Fixed) | $90,000 | $93,500 | $3,500 | $90,000 | $3,500 | $0 | ||
| $4,56,000 | $4,66,500 | $10,500 | $4,56,000 | $10,500 | $0 | |||
| Income From Operations | $1,59,000 | $4,71,000 | $3,12,000 | $4,62,000 | $9,000 | $3,03,000 | ||
| 1) As per above Calculations, | ||||||||
| a) Static Budget Variance | $3,12,000 | |||||||
| b) Volume Variance | $3,03,000 | |||||||
| c) Flexible Budget Variance | $9,000 | |||||||
 ekkarill92 answered 2 years agoRelated SolutionsWhich of the following is TRUE regarding the master budget? A. The sales budget is prepared...Which of the following is TRUE regarding the master budget?
A.
The sales budget is prepared after the production budget.
B.
The budgeting process starts with the cash budget.
C.
The direct materials budget is prepared before the production
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D.
Budgeted balance sheet is prepared after the budgeted income
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PHOENIX COMPANYFixed Budget ReportFor Year Ended December 31, 2017
Sales
$
3,300,000
Cost of goods sold
Direct materials
$
915,000
Direct labor
225,000
Machinery repairs (variable cost)
60,000
Depreciation—Plant equipment (straight-line)
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How often would you recommend the budget be analysed and
updated?
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sales volume of 18,000 units.
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Fixed Budget Report
For Year Ended December 31, 2019
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$
3,600,000
Cost of goods sold
Direct materials
$
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Direct labor
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Machinery repairs (variable cost)
36,000
Depreciation—Plant equipment (straight-line)
300,000
Utilities ($18,000 is variable)
178,000
Plant management salaries
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Shipping
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Fixed Budget Report
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$
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Cost of goods sold
Direct materials
$
900,000
Direct labor
240,000
Machinery repairs (variable
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Depreciation—Plant equipment
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315,000
Utilities ($45,000 is
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Plant management salaries
190,000
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Shipping
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Fixed Budget Report
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$
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Cost of goods sold
Direct materials
$
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Direct labor
300,000
Machinery repairs (variable cost)
60,000
Depreciation—Plant equipment (straight-line)
330,000
Utilities ($45,000 is variable)
205,000
Plant management salaries
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Gross profit
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Selling expenses
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Shipping
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Fixed Budget Report
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$
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Cost of goods sold
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Direct labor
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Machinery repairs (variable
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Depreciation—Plant equipment
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300,000
Utilities ($30,000 is
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195,000
Plant management salaries
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