Question

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	$	806,400
Variable costs
Manufacturing		177,408
Marketing and administrative		72,576
Contribution margin	$	556,416
Fixed costs
Manufacturing		232,680
Marketing and administrative		139,560
Operating profit	$	184,176

  

The company planned to produce and sell 103,200 units for $6.00 each. At that volume, the contribution margin would have been $433,440. Variable marketing and administrative costs are budgeted at 10 percent of sales revenue. Manufacturing fixed costs are estimated at $2.40 per unit at the normal volume of 103,200 units. Management notes, "We budget an operating profit of $1.00 per unit at the normal volume."

  

Required:

a. Construct the master budget for the period. (Do not round intermediate calculations.)

b. Prepare a profit variance analysis. (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.)

References

eBook & Resources

WorksheetLearning Objective: 16-02 Develop and use flexible budgets.

Answer 1

Please find below table useful to compute desired results: -

End results would be as follows: -

*Negative values are Unfavorable*