Question

Based on the information in the attachments
Crafts Inc., is a manufacturer of furniture The company has 2 responsibility centers: Production and Selling and Distribution. Production and administration are cost centers while Selling and Distribution is a profit center Presented below are the budgeted and actual contribution income statement for October along with applicable unit information Budgeted unit information: Unis Sale price per Unit Direct material per unit Direct labor per unit Variable manufacturing overhead per unit Variable selling and distribution per unit Actual Units: Craft Inc. Budgeted Contribution Income Statement For Month of October $ 195,200 Sales Less Variable costs Variable cost of goods sold: Direct materials Direct labor Manufacturing overhead S 38,400 14,400 12,800 S 65,600 36,000 Selling and distribution Contribution Margin (101,600) 93,600 Less Fixed Costs: Manufacturing overhead Selling and Distribution 40,000 30,000 70,000) Net Income 22.000 Craft Inc. Actual Contribution Income Statement For Month of October $ 230.000 Sales Less Variable costs Variable cost of goods sold: Direct materials Direct labor Manufacturing overhead 40.000 15.000 13.500 S 68.500 39.000 Selling and distribution Contribution Margin (107.500) 122.500 Less Fbced Costs: Manufacturing overhead Selling and Distribution 39,000 31,000 70,000) Net Income Loss) 52.500
, what areas should management investigate further? Please explain your answer.

Answer 1

Management should investigate into the following:

1. Reasons for increase in fixed selling and distribution costs by $1,000 and variable selling and distribution costs by $2 per unit (total variable costs divided by units sold)

2. Drivers for increase in selling price from $244 to $279 (total sales by units sold)

3. Reasons for decrease in fixed manufacturing overhead by $1,000

Despite increase in actual variable costs over budgeted amounts, these have remained in line with budgeted cost per unit, refer table below. Hence, we do not have any questions on the same.

A 1 Budgeted Amount 195,200 2 Ε Budgeted Actual Per unit Per unit 244 279 Actual Amount 230,000 (48) (48) (18) (18) 3 Sales 4 VC 5 DM 6 DL 7 MOH 8 S&D 9 СМ 10 MOH 11 S&D 12 Net (38,400) (14,400) (12,800) (36,000) 93,600 (40,000) (30,000) 23,600 (40,000) (15,000) (13,500) (39,000) 122,500 (39,000) (31,000) 52,500 (16) (45) 117 (50) (38) 30 (16) (47) 148 (47) (38) 64 13 800 825 14 No of units 15 16 17