Question

Problem 16-54 Sales Activity Variance (LO 16-3) The results for July for Brahms & Sons follow: Actual (based on actual sales of 55,000 units) Master Budget (based on budgeted sales 50,000 units) Sales revenue $ 465,000 $ 575,000 Less Variable costs Direct material 60,300 63,000 Direct labor 56,100 79,000 Variable overhead 64,900 79,000 Marketing 21,900 35,000 Administrative 20,300 35,000 Total variable costs $ 223,500 $ 291,000 Contribution margin $ 241,500 $ 284,000 Less Fixed costs Manufacturing 103,900 103,000 Marketing 24,300 35,000 Administrative 82,700 95,000 Total fixed costs $ 210,900 $ 233,000 Operating profits $ 30,600 $ 51,000 Required: Prepare a sales activity variance analysis for Brahms & Sons. (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.)

Answer 1

Ans.
	Particulars		Master budget	Flexible budget	Activity Variance
			50000 units	55000 units
	Sales		575000	632500	57500	F
	less: variable costs:
	Direct material		63000	69300	6300	U
	Direct labor		79000	86900	7900	U
	Variable overhead		79000	86900	7900	U
	Marketing		35000	38500	3500	U
	Administrative		35000	38500	3500	U
	Total variable cost		291000	320100	29100	U
	Contribution		284000	312400	28400	F
	Less: Fixed cost:
	Manufacturing		103000	103000	0	no effect
	Marketing		35000	35000	0	no effect
	Administrative		95000	95000	0	no effect
	Total Fixed cost		233000	233000	0	no effect
	Operating profits		51000	79400	28400	F
	*Calculation of flexible budget:
		Flexible budget (55000)
	Sales	(575000/50000*55000)
	less: variable costs:
	Direct material	(63000/50000*55000)
	Direct labor	(79000/50000*55000)
	Variable overhead	(79000/50000*55000)
	Marketing	(35000/50000*55000)
	Administrative	(35000/50000*55000)
	Total variable cost	(291000/50000*55000)
	Contribution	(284000/50000*55000)
	Less: Fixed cost:
	Manufacturing	103000
	Marketing	35000
	Administrative	95000
	Total Fixed cost	233000
	*Flexible budget is prepared on the basis of actual units produced and sold.
	*Fixed cost are same as master budget.
	*Activity Variance = Master budget - Flexible budget
	*Increase in Sales, Contribution margin & Operating profit   = favorable.
	*Decrease in Sales, Contribution margin & Operating profit   = Unfavorable.
	*Increase in Variable cost & Fixed cost   = Unfavorable.
	*Decrease in Variable cost & Fixed cost   = favorable.