Question

Tsypkin Company's budgeted sales quantity was 80,000 units of product. The company's accountant, using regression analysis, applied the following cost formula to estimate costs at the master budget level for this year: Total cost = $500,000 + ($5.20 × units produced and sold). The product had a budgeted selling price of $15.20 each. During the year, the actual sales were 82,000 units and selling price was $15.15 per unit. The actual variable costs were $418,200 and the fixed costs were $500,000.

A. What was Tsypkin's profit variance?
B. What was Tsypkins's sales price variance?

Answer 1

PART – A)

Budgeted operating profit = Budgeted sales – Budgeted cost

                                          = ($15.20*80,000 units) – [$500,000 + ($5.20*80,000 units)]

                                          = $1,216,000 – $500,000 – $416,000

                                          = $300,000

Actual operating profit = Actual sales – Actual variable cost – Actual fixed cost

                                     = ($15.15*82,000 units) – $418,200 – $500,000

                                     = $1,242,300 – $918,200

                                     = $324,100

Profit variance = Actual operating profit – Budgeted operating profit

                        = $324,100 – $300,000

                        = $24,100 favourable

PART – B)

Sales price variance = (Budgeted sale price – Actual sale price)*Actual quantity

                                 = ($15.20 – $15.15)*82,000 units

                                 = 0.05*82,000 units

                                 = $4,100 Unfavourable