Question

Osage, Inc., manufactures and sells lamps. The company produces only when it receives orders and, therefore, has no inventories. The following information is available for the current month:

  

	Actual (based on actual orders for 458,000 units)						Master Budget (based on budgeted orders for 496,000 units)
Sales revenue		$	4,976,000					$	4,960,000
Less
Variable costs
Materials			1,480,000						1,488,000
Direct labor			284,000						347,200
Variable overhead			675,200						644,800
Variable marketing and administrative			484,000						496,000
Total variable costs		$	2,923,200					$	2,976,000
Contribution margin		$	2,052,800					$	1,984,000
Less
Fixed costs
Manufacturing overhead			990,400						960,800
Marketing			296,000						288,800
Administrative			212,000						180,800
Total fixed costs		$	1,498,400					$	1,430,400
Operating profits		$	554,400

Required:

Prepare a profit variance analysis for Osage, Inc., (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.)

OSAGE, INC. Profit Variance Analysis Actual Manufacturing Variances Marketing and Administrative Variances Sales Price Variance Flexible Budget Sales Activity Variance Master Budget Sales revenue $4,976,000 F U $4,960,000 Variable costs: Materials 1,480,000 U F 1,488,000 Direct labor 284,000 F F 347,200 Variable overhead 675,200 U F 644,800 Variable marketing and administrative 484,000 U F 496,000 Total variable costs $2,923,200 U U $0 F $2,976,000 Contribution margin $2,052,800 U U F $0 U $1,984,000 Fixed costs: Manufacturing overhead 990,400 U 960,800 Marketing 296,000 288,800 Administrative 212,000 U 180,800 Total fixed costs $1,498,400 U U $0 $1,430,400 Operating profits $554,400 U U F $0 U $553,600

Answer 1

Osage Inc.
Profit variance Analysis
	Actual	Manufacturing Variances		Marketing and Administrative vaiances		Sales Price Variance		Flexible Budget	Sales Activity Variance		Master Budget
	(a)							(b) = [(c)/496000] X 458000			(c)
Number of Orders	4,58,000							4,58,000			4,96,000
Sales Revenue	$       49,76,000					$   3,96,000	F	$               45,80,000	$         3,80,000	U	$       49,60,000
Less Variable Expenses:
Material	$       14,80,000	$   1,06,000	U					$               13,74,000	$         1,14,000	F	$       14,88,000
Direct Labor	$          2,84,000	$      36,600	F					$                  3,20,600	$            26,600	F	$          3,47,200
Variable Overhead	$          6,75,200	$      79,800	U					$                  5,95,400	$            49,400	F	$          6,44,800
Variable Marketing and Administration	$          4,84,000			$          26,000	U			$                  4,58,000	$            38,000	F	$          4,96,000
Total Variable Costs	$       29,23,200	$   1,49,200	U	$          26,000	U			$               27,48,000	$         2,28,000	F	$       29,76,000
Contribution margin	$       20,52,800	$   1,49,200	U	$          26,000	U	$   3,96,000	F	$               18,32,000	$         1,52,000	U	$       19,84,000
Less Fixed Expenses:
Manufacturing Overhead	$          9,90,400	$      29,600	U					$                  9,60,800	$                      -	None	$          9,60,800
Marketing	$          2,96,000			$            7,200	U			$                  2,88,800	$                      -	None	$          2,88,800
Administration	$          2,12,000			$          31,200	U			$                  1,80,800	$                      -	None	$          1,80,800
Total Fixed Costs	$       14,98,400	$      29,600	U	$          38,400	U			$               14,30,400	$                      -	None	$       14,30,400
Operating Profits	$          5,54,400	$   1,78,800	U	$          64,400	U	$   3,96,000	F	$                  4,01,600	$         1,52,000	U	$          5,53,600