Question

In: Accounting

Monthly Budget Data Selling price per Unit $79 per unit Raw Materials Cost $27 per unit...

Monthly Budget Data
Selling price per Unit	$79 per unit
Raw Materials Cost	$27 per unit
Packaging Costs	$15 per unit
Electricity	$4 per unit
Waste and Other Costs	$6 per unit
Salary and Wages Costs	$560,000 per month
Fringe Benefits	50% of salaries
Rent Costs	$750,000 per month
Insurance Costs	$50,000 per month
Depreciation Costs	$370,000 per month

Actual Data	January	February
Production (Units)	245000	187000
Revenue	$ 19,345,000.00	$ 14,888,000.00
Raw Materials	$ 6,545,000.00	$ 4,996,000.00
Package Materials	$ 3,688,000.00	$ 2,897,000.00
Electricity	$ 975,000.00	$ 742,000.00
Waste and Other Costs	$ 1,537,000.00	$ 1,242,000.00
Wages	$ 560,000.00	$ 575,000.00
Fringe Benefits	$ 280,000.00	$ 287,500.00
Rent	$ 750,000.00	$ 750,000.00
Insurance	$ 52,000.00	$ 52,000.00
Depreciation	$ 370,000.00	$ 340,000.00

Vroom-Vroom estimated sales/production will be between 100,000 and 300,000 cars per month. Their static budget is based on 200,000 cars sold per month. Assume that all units produced in a month are also sold in that month. Vroom-Vroom’s unit of production/sale is a car (unit/each).

Prepare a static budget in Excel for Vroom-Vroom based on 200,000 units produced. (36 points)

Show the static budget for January in Contribution Margin Income Statement format.
Compare January’s static budget to January’s actual results. Specify which line items are favorable or unfavorable and how much.
For Raw Material Costs and Packaging Costs, break out the Price and Volume Variances for January. Provide potential explanations for each one. Note: Saying that an item was above or below budget is NOT an explanation. You need to include potential (made-up) reasons.
Show the static budget for February in Contribution Margin Income Statement format.
Compare February’s static budget to February’s actual results. Specify which line items are favorable or unfavorable and how much.
For Raw Material Costs and Packaging Costs, break out the Price and Volume Variances for February. Provide potential explanations for each one. Note: Saying that an item was above or below budget is NOT an explanation. You need to include potential (made-up) reasons.

Expert Solution

Answer : -

Static Budget for 200,000 units

Production ( units)	200,000
Revenue (200,000 * $79 per unit)	$1,58,00,000
Raw material (200,000 * $27 per unit)	($54,00,000)
Packaging cost (2,00,000 * $15)	($30,00,000)
Electricity (2,00,000 * $4 )	($8,00,000)
Waste and other cost(200,000 *$6 per unit)	($12,00,000)
Wages	($5,60,000)
Fringe benefits (50% * $5,60,000)	($2,80,000)
Rent	($7,50,000)
Insurance	($50,000)
Depreciation	($3,70,000)
Profit	$33,90,000

a) January Static budget in Contribution margin income statement format

	January (Budgeted)	Jaunary (Actual)	Variance	Type of variance
Production (units)	2,00,000	2,45,000
Revenue	$1,58,00,000	19,345,000	3,545,000	Favorable
Less : Variable cost (Raw material)	($54,00,000)	($65,45,000)	(11,45,000)	Unfavorable
Package material	($30,00,000)	($36,88,000)	($6,88,000)	Unfavorable
Electricity	($8,00,000)	($9,75,000)	($1,75,000)	Unfavorable
Waste and other costs	($12,00,000)	($15,37,000)	($3,37,000)	Unfavorable
Contribution margin	$54,00,000	$66,00,000	$12,00,000	Favorable
Less: Fixed cost (Salary and wages costs)	($5,60,000)	($5,60,000)	0
Fringe benefits (50% * $5,60,000)	($2,80,000)	($2,80,000)	0
Rent	($7,50,000)	($7,50,000)	0
Insurance	($50,000)	($52,000)	($2,000)	Unfavorable
Depreciation	($3,70,000)	($3,70,000)	0
Profit	$33,90,000	$45,88,000

b.) Break up of Price and Volume variance for Raw material cost and Packging cost

Raw material Price variance = (Actual price - Standard price) * Actual quantity

($26.71 - $27) * 245000 = $70,000 favorable

Raw material Volume variance = (Standard quanity - Actual quantity) * Standard price

($200000 - 245000) * 27 = $12,15,000 Unfavorable

Packging cost Price variance = (15.05306 - 15) * 245000 = $13,000 unfavorable

Packging cost volume variance = (2,00,000 - 2,45,000) * 15 = $6,75,000 unfavorable

c.)

	February (Budgeted)	February (Actual)	Variance	Type of variance
Production (units)	2,00,000	1,87,000
Revenue	$1,58,00,000	$148,88,000	($9,12,000)	Unfavorable
Less : Variable cost (Raw material)	($54,00,000)	($49,96,000)	$4,04,000	Favorable
Package material	($30,00,000)	($28,97,000)	$1,03,000	Favorable
Electricity	($8,00,000)	($7,42,000)	$58,000	Favorable
Waste and other costs	($12,00,000)	($12,42,000)	($42,000)	Unfavorable
Contribution margin	$54,00,000	$50,11,000	$3,89,000	Unfavorable
Less: Fixed cost (Salary and wages costs)	($5,60,000)	($5,75,000)	($15,000)	Unfavorable
Fringe benefits (50% * $5,60,000)	($2,80,000)	($2,87,500)	($7,500)	Unfavorable
Rent	($7,50,000)	($7,50,000)
Insurance	($50,000)	($52,000)	($2,000)	Unfavorable
Depreciation	($3,70,000)	($3,40,000)	$30,000	Favorable
Profit	$33,90,000	$3,00,6500

d.)

Break up of Price and Volume variance for Raw material cost and Packging cost

Raw material Price variance = (Actual price - Standard price) * Actual quantity

Actual price = $49,96,000 / 1,87,000 = $26.72

($26.7165 - $27) *1,87,000 = $53,000 Favorable

Raw material Volume variance = (Standard quanity - Actual quantity) * Standard price

(2,00,000 - 1,87,000) * 27 = $3,51,000 Favorable

Packging cost Price variance =

Acutal price = $28,97,000 / 1,87,000 = $15.49 per unit

($15.49 - $15) * 1,87,000 = $92,000 Unfavorable

Packging cost volume variance = (2,00,000 - 1,87,000 ) * 15 = $1,95,000 Favorable

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