Question

TUMI Comparative Income Statement July, 20XX Budgeted Actual Sales (1) $       400,000 $   423,500 (1a) A. Less variable costs Variable cost of goods sold Direct materials (2)              100,000        108,000 B. Direct Labor (3)                60,000          70,000 C. Manufacturing Overhead (4)                80,000           240,000          81,000       259,000 D. Selling costs (5)              50,000         65,000 E. Contribution margin           110,000         99,500 Less Fixed costs Manufacturing overhead                52,000          53,000 F. Selling costs                10,000             9,500 G. Administrative (6)                  4,000              66,000             3,800         66,300 H. Budgeted net income $         44,000 $     33,200 (1) Budgeted 10,000 bags @ $40 (1a) Actual 11,000 bags @ $38.50 (2) Budgeted 10,000 bags @ $10 (3) Budgeted 10,000 bags @ $6 (4) Budgeted 10,000 bagfs @ $8 (5) budgeted 10,000 bags @ $5 (6) discretionary cost center Additional Information: TUMI is composed of three responsibility centers: a production department, a sales department, and an administration department. Required: Analyze the variances for each line item (A-H), using horizontal and vertical analysis. Provide an explanation for each variance and recommendations for the managers to consider for improvements. Complete the analysis in the attached file. complete both a vertical and horizontal analysis and explain the variances with recommendations for improvements. TUMI
Comparative Income Statement
July, 20XX
			Budgeted				Actual
Sales			(1)		$       400,000			$   423,500	(1a)	A.
Less variable costs
	Variable cost of goods sold
		Direct materials	(2)	100,000			108,000			B.
		Direct Labor	(3)	60,000			70,000			C.
		Manufacturing Overhead	(4)	80,000	240,000		81,000	259,000		D.
	Selling costs		(5)		50,000			65,000		E.
Contribution margin					110,000			99,500
Less Fixed costs
	Manufacturing overhead			52,000			53,000			F.
	Selling costs			10,000			9,500			G.
	Administrative		(6)	4,000	66,000		3,800	66,300		H.
Budgeted net income					$         44,000			$     33,200
(1)	Budgeted 10,000 bags @ $40
(1a)	Actual 11,000 bags @ $38.50
(2)	Budgeted 10,000 bags @ $10
(3)	Budgeted 10,000 bags @ $6
(4)	Budgeted 10,000 bagfs @ $8
(5)	budgeted 10,000 bags @ $5
(6)	discretionary cost center
Additional Information:
TUMI is composed of three responsibility centers: a production department, a sales department, and an administration department.
Required:
Analyze the variances for each line item (A-H), using horizontal and vertical analysis.
Provide an explanation for each variance and recommendations for the managers to consider for improvements.
. complete both a vertical and horizontal analysis and explain the variances with recommendations for improvements.

Answer 1

TUMI
Comparative Income Statement
July, 20XX
			Budgeted				Actual				Variance	Recommendation
Sales			-1		$       400,000			$   423,500	(1a)	A.	Sales Variance=price variance +quantity variance a)price variance=(actual selling price per unit- budgeted selling price per unit)*Actual quantity =(38.5-40)*11000 =-16500 b) Quantity variance=(Actual sales quantity-Budgeted Sales Quantity)*Budgeted Selling price =(11000-10000)*40 =40000 Hence Sales Variance =(a) + (b) =-16500+40000 =23500	it is a positive variance as actual sales is more then the budgeted sales. But the actual selling price is less than the budgeted price hence the management should try to sell the product at a higher price.
Less variable costs
	Variable cost of goods sold
		Direct materials	-2	100,000			108,000			B.	Direct Material variance= budgeted cost for actual quantity - actual variable cost =10*11000-108000 =2000	it is a positive variance as actual cost of direct material is less than the budgeted cost.
		Direct Labor	-3	60,000			70,000			C.	Direct Labour variance= budgeted cost for actual quantity - actual variable cost =6*11000-70000 =-4000	it is a negative variance as actual cost of direct labour is more then the budgeted cost. The management should properly maintain labour job and improve its efficiency
		Manufacturing Overhead	-4	80,000	240,000		81,000	259,000		D.	manufacturing overhead variance= budgeted cost for actual quantity - actual variable cost =8*11000-81000 =7000	it is a positive variance as actual manufacturing overhead is less than the budgeted cost.
	Selling costs		-5		50,000			65,000		E.	Selling cost variance=budgeted cost for actual quantity- actual variable cost =5*11000-65000 =-10000	it is a negative variance as actual selling cost is more then the budgeted cost. The management should look upon its selling cost
Contribution margin					110,000			99,500
Less Fixed costs
	Manufacturing overhead			52,000			53,000			F.	Fixed Manufacturing overhead variance=Budgeted cost- Actual cost =52000-53000 =-1000	negative variance but it is fixed cost which mangament cannot change easily
	Selling costs			10,000			9,500			G.	Fixed selling overhead variance=Budgeted cost- Actual cost =10000-9500 =500	It is a positive variance
	Administrative		-6	4,000	66,000		3,800	66,300		H.	Fixed administrative overhead variance=Budgeted cost- Actual cost =4000-3800 =200	It is a positive variance
Budgeted net income					$         44,000			$     33,200