The master budget at Western Company last period called for sales of 225,700 units at $9.7...

The master budget at Western Company last period called for sales of 225,700 units at $9.7 each. The costs were estimated to be $3.82 variable per unit and $225,700 fixed. During the period, actual production and actual sales were 230,700 units. The selling price was $9.80 per unit. Variable costs were $5.20 per unit. Actual fixed costs were $225,700.

Required:

Prepare a profit variance analysis. (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.)

Sales revenue, variable costs, contrabution margin, fixed costs and operating profits for the actual budget, manufacturing variances, sales price variance, flexible budget, sales activity variance and the master budget.

Expert Solution

Ans.	Profit Variance Analysis of WESTERN COMPANY
			Manufac. Market.	Sales price		Sales Activity variance
		Actual results	& Adm. Variance	Variance	Flexible budget			Master Budget
	Sales revenue	2260860		23070 F	2237790	48500	F	2189290
	Variable costs	1199640	318366 U		881274	19100	U	862174
	Contribution margin	1061220	318366 U	23070 F	1356516	29400	F	1327116
	Fixed costs	225700	no effect		225700	0	no effect	225700
	Operating	835520	318366 U	23070 F	1130816	29400	F	1101416


	*Calculation:
		Actual results	Flexible budget	Master budget
	Units	230700	230700	225700

	Sales revenue	230700*9.80	230700*9.7	225700*9.7
	Variable costs	230700*5.20	230700*3.82	225700*3.82
	Fixed costs	225700	225700	225700

	*Flexible budget is prepared on the basis of actual unit sales.

	Sales price variance = Actual results - flexible budget.
	Manufacturing, marketing & Administration variance = Actual cost - Flexible costs
	Sales Activity variance = Flexible budget - Planning budget.

	*Increase in sales, contribution & profit = Favorable.
	*Decrease in sales, contribution & profit = Unfavorable.
	*Increase in variable & fixed cost = Unfavorable.
	*Decrease in variable & fixed cost = Favorable.

ekkarill92 answered 1 year ago

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