Question

Gibson Publications established the following standard price and costs for a hardcover picture book that the company produces.

Standard price and variable costs
Sales price	$	36.90
Materials cost		8.50
Labor cost		3.60
Overhead cost		5.40
Selling, general, and administrative costs		6.60
Planned fixed costs
Manufacturing overhead	$	127,000
Selling, general, and administrative		50,000

Gibson planned to make and sell 38,000 copies of the book.

Required:

a. - d. Prepare the pro forma income statement that would appear in the master budget and also flexible budget income statements, assuming production volumes of 37,000 and 39,000 units. Determine the sales and variable cost volume variances, assuming volume is actually 39,000 units. Indicate whether the variances are favorable (F) or unfavorable (U). (Select "None" if there is no effect (i.e., zero variance).)

Gibson Publications established the following standard price and costs for a hardcover picture book that the company produces.

Standard price and variable costs
Sales price	$	36.90
Materials cost		8.50
Labor cost		3.60
Overhead cost		5.40
Selling, general, and administrative costs		6.60
Planned fixed costs
Manufacturing overhead	$	127,000
Selling, general, and administrative		50,000

Gibson planned to make and sell 38,000 copies of the book.

Required:

a. - d. Prepare the pro forma income statement that would appear in the master budget and also flexible budget income statements, assuming production volumes of 37,000 and 39,000 units. Determine the sales and variable cost volume variances, assuming volume is actually 39,000 units. Indicate whether the variances are favorable (F) or unfavorable (U). (Select "None" if there is no effect (i.e., zero variance).)

Answer 1

Flexible Budget variance				master	Flexible budget		Volume variance
				budget
number of units				38,000	37,000	39,000
Sales revenue				1402200	1365300	1439100	36900	F
Variable manufacturing costs
Materials				323000	314500	331500	8500	U
labor				136800	133200	140400	3600	U
overhea				205200	199800	210600	5400	U
Selling,general & administrative costs				250800	244200	257400	6600	U
contribution margin				486400	473600	499200	12800	F
fixed costs
manufacturing overhead				127,000	127,000	127,000	0	F
Selling,general & administrative costs				50,000	50,000	50,000	0	U
Net income				309,400	296,600	322,200	12800	F