Question

Instant Computing is a contract manufacturer of laptop computers sold under brand named companies. Presented are Instant’s budgeted and actual contribution income statements for October. The company has three responsibility centers: Production, Selling and Distribution, and Administration. Production and Administration are cost centers while Selling and Distribution is a profit center.

Instant Computing Budgeted Contribution Income Statement For Month of October

Sales (1,800*$250)………………………………………………….……$450,000

Less variable costs

     Variable cost of goods sold

Direct materials (1,800*$50)………….$90,000

        Direct Labor (1,800*$20)…….………..36,000

        Manufacturing Overhead (1,800*$15)..27,000       $153,000

   Selling and Distribution (1,800*$60)…………………....108,000          (261,000)

Contribution Margin…………………………………….. 189,000

Less Fixed Costs

            Manufacturing Overhead………………………..80,000

            Selling and Distribution………………………….60,000

            Administrative……………………………………21,000              (161,000)

Net Income………………………………………………….                        $28,000

Instant Computing Actual Contribution Income Statement For Month of October

Sales (2,500*$275)…………………………………………………………………..…$687,500

Less variable costs

    Cost of goods sold

            Direct materials………………………$125,000

            Direct Labor………………………..57,000

            Manufacturing Overhead…………48,750              $231,250

Selling and Distribution…………………………………..188,000                    (419,250)

Contribution Margin………………………………………..                                    268,250

Less Fixed Costs

     Manufacturing Overhead…………………………………78,000

      Selling and Distribution…………………………………..75,000

      Administrative…………………………………………….43,000                    (196,000)

Net Income (loss)…………………………………………………….                        $72,250

Required

1. Prepare a performance report for Production that compares actual and allowed costs.
2. Prepare a performance report for Selling and Distribution that compares actual and allowed costs.
3. Determine the sales price and the net sales volume variances.
4. Prepare a report that summarizes the performance of Selling and Distribution.
5. Determine the amount by which Administration was over or under budget.
6. Prepare a report reconciling budgeted and actual net income. Your report should focus on the performance of each responsibility center.

Answer 1

a) Below Table Compares the Budgeted and Actual Production Costs:-

The working of the same is below:-

On analysis of the above table below are the conclusions:-

1) Labour Cost Per Unit of Manufacturing Increased by 14%

2) Manufacturing Obverhead Cost Per Unit of Production increased by 30%

3) The actual expenses of $18250 were incurred more than allowed expenses.

4) There was no change in cost of Materials.

5) The Budgeted Cost of Manufacturing Fixed Overhead was $80000, whereas the actual Fixed Manufacturing Overhead incurred was $78000, indicating that the company was able to Save $2000 on the same.

B) Below is the Detailed Performance Report on Actual and Allowed Cost of Selling and Distribution

Allowed		Actual
	Qty	Rate	Total			Qty	Rate	Total
Selling and Distribution	2500	60.00	1,50,000.00		Selling and Distribution	2500	75.20	1,88,000.00

The working of the same is below:-

On an analysis of the above following conclusions are derived

1) Selling and Distribution Cost Increased by $38000

2) The above is on account of Per Unit Selling and Distribution Cost increase by more than 25%

C) Sales Price Variance - Actual Quantity*(Standrad Price - Actual Price)

=2500*(250-275)

=-62500. Since The price Variance is Negative this means that the company has outperformed in terms of Sales Price is concerned when compared with its Budgeted Price.

Sales Volume Variance = Actual Price*(Budgeted Quantity- Actual Quantity)

=275*(1800-2500)

=-192500 Since The Volume Variance is Negative this means that the company has outperformed in terms of Sales Quantity is concerned when compared with its Budgeted Quantity.

D) Performance of Selling and Distribution is as below:-

Allowed		Actual		%age Increase
	Qty	Rate	Total			Qty	Rate	Total
Variable Cost (B)					Variable Cost (B)
Selling and Distribution	2500	60	150000		Selling and Distribution	2500	75	188000		25%
Total	1,50,000		Total	1,88,000
Fixed Cost ('C)					Fixed Cost ('C)
Selling and Distribution			60000		Selling and Distribution			75000		25%
Total	2,10,000		Total	2,63,000		25%

The Working of the same is below:-

Both Variable and Fixed Selling and Distribution Cost Increased by 25%.

E) The anaysis of Administrative cost is as below:-

The working of the same is as below:-

This shows that the administrative cost increased by $22000. This means that the same was underbudgeted.

F)

Budgeted (Allowed)		Actual		Performance
	Qty	Rate	Total			Qty	Rate	Total
Sales (A)	2500	250	625000		Sales (A)	2500	275	687500		Both Quantity and Sales Price Increased.
Total (A)	625000		Total (A)	687500
Variable Cost (B)					Variable Cost (B)
Direct Materials	2500	50	125000		Direct Materials	2500	50	125000		No change
Labour	2500	20	50000		Labour	2500	23	57000		Cost Per Unit was higher than Budgeted
Manufacturing Overhead	2500	15	37500		Manufacturing Overhead	2500	20	48750		Cost Per Unit was higher than Budgeted
Selling and Distribution	2500	60	150000		Selling and Distribution	2500	75	188000		Cost Per Unit was higher than Budgeted
Total (B)	362500		Total (B)	418750
Fixed Cost ('C)					Fixed Cost ('C)
Manufacturing Overhead			80000		Manufacturing Overhead			78000		Cost was Overbudgeted
Selling and Distribution			60000		Selling and Distribution			75000		Cost was underbudgeted
Administrative			21000		Administrative			43000		Cost was underbudgeted
Total ('C)	161000		Total ('C)	196000
Income (A-B-C)	101500		Income (A-B-C)	72750

The working of the same is as below:-