Question

CHECK FIGURES a. NI = $702,000 b. Nl at 29,000 units: $666,000 Problem 8-20A Determining sales and variable cost volume variances Narcisco Publications established the following standard price and costs for a hardcover picture book that the company produces. Standard price and variable costs Sales price $90.00 Materials cost 18.00 Labor cost 9.00 Overhead cost 12.60 14.40 Selling, general, and administrative costs Planned fixed costs Manufacturing overhead $270,000 Selling, general, and administrative 108,000 Narcisco planned to make and sell 30,000 copies of the book. Required a. Prepare the pro forma income statement that would appear in the master budget. b. Prepare flexible budget income statements, assuming production volumes of 29,000 and 31,000 units. c. Determine the sales and variable cost volume variances, assuming volume is actually 31,000 units. d. Indicate whether the variances are favorable (F) or unfavorable (U). e. Comment on how Narcisco could use the variances to evaluate performance.

Answer 1

Answer: 1 page: Given standard price and variable costs sales parice - $90.00 material cost - 16.00 .. labor cost - 9.00 overhead cost - 19.60 Selling, general, and administrative costs - 14.40 planned fixed costs manufauteuing overhead - $ 270,000 Selling general and administrative - 108,000 Required @income statement particulars Amount (1) Amount (1) Sales (30,000 $90) 2100000 variable cost material cost ('$ 18 x 30000) 540000 labor cost.($9X 30000) 270000 overhead cost $12.60 X 30000) 378000 ($14.40X 30000 selling general $ administrative costs - 1432000_ (1620000) contribution margin (2400000 - 1620000) 1080000 fixed costs_

page-om 270000 manufacturing evenhead Selling generall administrative.costs Lnet income ( 1080000 – 348000) 10 8000318000 902000 29000 31000 particulous sales variable cost Materialiost 26100002790000 522000 labor cost 558000 overhead cost 261000 19000 365400 390600 41-1600446400 (11566000) 11674000) 1044000 116000 Selling general administrative costs Total variable cost contribution mecegin fixed cost selling, general { administrative costs manufacturing Duckhead Total fixed cost 108000 108000 10100000-10000 | 378000_ 378000 4. 116000 - (1044000 378000 000)'( 378000) 666000 738 000 Net income

sales volume variance page-03 = [ Expected sales (-) Actual sales]* . budgeted selling price Expected sales - (30,000 (-) 31000) * $ 90 = $90,000 variable cost voltame variance = (standard units El Actual cinits] x vovicable cost-pey can't = (30,000€) 31000) x 54 = $54000 sales volume variance is favorable(F) .: Varicable cost volume variance is unfavorable (u). Narcisco publications should we variances to gain an idea about the performance of the company In the above example, as sales volume variance is favorable (F), it meanis that more sales are done. As variable cost volume variance is cenfavorable (u), fñe total variable cost has increased.