Question

Harv Busta owns and operates River Adventure Kayaks a small that manufactures one model of fiberglass Kayak Built for the while water kayaking. The following relates to budgeted and actual production and sales for River Adventure Kayaks during 2019

Standard Cost for one Kayak is as follows:
   Direct Material Resin 2Gallons @ $30.00/Gallon                   $60/ Kayak
   Direct Labor    3 Hours @30/Hour                                          $90/Kayak
   Variable manufacuring overhead: $4/Direct Labour hours      $12/Kayak
   Fixed Manufacuring Overhead   $180,000 Per Year
   (applied using direct labour hours) $24/dlh = $180,000/7500 dlh

   Budgeted production and sales    2500 Kayaks
   Budgeted Selling Price     $400/Kayak

Other Information:
   Variable selling and Administrative costs shipping  $40 per kayak
     Commision (5% of selling Price)                            $20 per Kayak
   Fixed selling and administrative costs                      $90,000 per year

River Adventure Kayaks' Planned sales for 2019   2500 Kayaks
Estimated 2019 Industry sales for similar types of Kayaks 20,000 Kayaks

During 2019

River adventure Kayaks produced and sold = 2400 Kayaks, The total market for similar Kayaks was 24000 kayaks
Actual selling prices = $440/Kayak
5000 gallons of resin was purchased costing $160,000 and 4860 gallons were used in production.
Direct Labor cost for 2019 $218,500 and 7600 Hours direct labor hours were worked during the year

Actual manufacturing overhead costs incurred in 2019 were:
                          Variable manufacturing overhead = $29,260
                             Fixed Manufacturing Overhead  = 186,200
                                                                                     ------------
                                                                       Total    = 215,460
   
Actual Selling and Administrative costs incurred in 2019 were
                              Shipping Costs     $ 97,200
                                   Commission    $ 52,800
                                                  ----------------------
        Fixed Selling and Administrative $ 150,000

Required

1. Develop a flexible Budget profit plan (Income Statement) for 2019 listing all revenues and expenses in a contribution mrgin format.
2. Determine the sales price and sales volume variances( calculate the sales volumes variance based on budgeted contribution margin).
3. Determine the market share and market size variances based on contribution margin.
4. Determine the material price and quantify variances for resin. The Price variance should be computed on materials purchased.
5. Determine the direct labor rate and efficiency variances
6. Compute the variable manufacturing overhead flexible budget variance.
7. Compare the Fixed Manufacturing overhead budget variance.

Answer 1

1.FLEXIBLE BUDGET PROFIT PLAN

	PLANNED	PLANNED	PLANNED
UNITS	1	2500	2400
SELLING PRICE	400	1000000	960000
COMMISSION	20	50000	48000
NET SELLING PRICE	380	950000	912000
DIRECT MATERIAL RESIN	60	150000	144000
DIRECT LABOUR	90	225000	216000
VARIABLE MANUFACTURING O.H.	12	30000	28800
VARIABLE SELLING AND ADMINISTRATION COST	40	100000	96000
TOTAL VARIABLE COST	202	505000	484800
CONTRIBUTION MARGIN	178	445000	427200
FIXED MANUFACTURING OVERHEAD		180000	180000
FIXED SELLING AND ADMINISTRATION COSTS		90000	90000
OPERATING PROFIT		175000	157200

2. SALES PRICE VARIANCE= (ACTUAL PRICE-STANDARD PRICE)* ACTUAL QUANTITY SOLD

=(440-400)*2400=$96000 FAVOURABLE

SALES VOLUME VARIANCE=(ACTUAL VOLUME-BUDGETED VOLUME)*BUDGETED CONTRIBUTION MARGIN

=(2400-2500)*178=$17800 UNFAVOURABLE

3. MARKET SHARE VARIANCE=ACTUAL MARKET SIZE IN UNITS*(ACTUAL MAKET SHARE-BUDGETED

MARKET SHARE)*BUDGETED CONTRIBUTION MARGIN

=24000*(.1-.125)*178=$106800 UNFAVOURABLE

NOTES1. ACTUAL MARKET SHARE=2400/24000=.1

BUDGETED MARKET SHARE=2500/20000=.125

MARKET SIZE VARIANCE=(ACTUAL MARKET SIZE-BUDGETED MARKET SIZE)*BUDGETED MARKET SHARE*BUDGETED CONTRIBUTION PER UNIT

=(24000-20000)*.125*178=$89000 FAVOURABLE

4. MATERIAL PRICE VARIANCES=ACTUAL QUANTITY PURCHASED(ACTUAL PRICE-STANDARD PRICE)

=5000(32-30)=$10000 UNFAVORABLE

ACTUAL PRICE=160000/5000=$32

MATERIAL QUANTITY VARIANCE=(ACTUAL QUANTITY-STANDARD QUANTITY)*BUDGETED PRICE

=(4860-4800)*30=$1800 UNFAVOURABLE

5. DIRECT LABOUR RATE VARIANCE=(STANDARD RATE-ACTUAL RATE)*ACTUAL LABOUR HOURS

=(30-28.75)*7600=$9500 FAVOURABLE

ACTUAL LABOUR RATE=218500/7600=$28.75

DIRECT LABOUR EFFICENCY VARIANCE= (STANDARD HOURS-ACTUAL HOURS)*STANDARD RATE

=(7200-7600)*30=$12000 UNFAVOURABLE

STANDARD HOURS=2400*3=7200

6. VARIABLE MANUFACTURING OVERHEAD VARIANCE= STANDARD COST FOR ACTUAL OUTPUT-ACTUAL COST FOR ACTUAL OUTPUT

= 2400*12-29260=460 UNFAVOURABLE

7. FIXED OVERHEAD VARIANCE=BUDGETED OVERHEAD-ACTUAL OVERHEAD

=180000-186200=$6200 UNFAVOURABLE