Question

The master budget at Western Company last period called for sales of 226,000 units at $10.00 each. The costs were estimated to be $3.85 per unit and $226,000 fixed. During the period, actual production and actual sales were 231,000 units. The selling price was $10.10 per unit. Variable costs were $5.50 per unit. Actual fixed costs were $226,000.

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.)

Answer 1

Ans.	Western   Company
	Profit Variance Analysis
		Actual results	Flexible budget	Variances	Fav./ Unf.
	Sales	$2,333,100	$2,310,000	$23,100	F
	Less: Variable cost	$1,270,500	$889,350	$381,150	U
	Contribution margin	$1,062,600	$1,420,650	$358,050	U
	Less: Fixed cost	$226,000	$226,000	$0	none
	Income from operations	$836,600	$1,194,650	$358,050	U
	*Flexible budget is prepared on the basis of actual units.
	*Fixed expenses in flexible budget remain same as master budget.
	*Calculations for sales:
	Actual results sales = Actual units sold * Actual selling price
		231,000 * $10.10
		$2,333,100
	Flexible budgeted sales = Actual units sold * Master budgeted selling price
		231,000 * $10
		$2,310,000
	*Calculations for Variable costs:
	Actual results variable cost = Actual units sold * Actual variable cost per unit
		231,000 * $5.50
		$1,270,500
	Flexible variable cost = Actual units sold * Master budgeted variable cost per unit
		231,000 * $3.85
		$889,350
	*Increase in expenses & decrease in sales, contribution margin or net income from flexible budget to actual results =   Unfavorable.
	*Decrease in expenses & increase in sales, contribution margin or net income from flexible budget to actual results =   Favorable.