Question

The master budget at Western Company last period called for sales of 226,800 units at $10.80 each. The costs were estimated to be $3.93 variable per unit and $226,800 fixed. During the period, actual production and actual sales were 231,800 units. The selling price was $10.90 per unit. Variable costs were $6.30 per unit. Actual fixed costs were $226,800. Required: Prepare a profit variance analysis. (Indicate the effect of each varlance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.) WESTERN COMPANY Profit Variance Analysis Actual Budget Manufacturing Variances Sales Price Variance Flexible Budget Sales Activity Variance Master Budget Sales revenue Less: Variable costs Contribution margin Less: Fixed costs Operating profits s of Of 30

Answer 1

Profit Variance Analysis of WESTERN COMPANY
		Manufacturing Variance	Sales price		Sales Activity variance
	Actual results		Variance	Flexible budget				Master Budget
Sales revenue	2526620		23180   F	2503440	54000		F	2449440
Variable costs	1460340	549366   U		910974	19650		U	891324
Contribution margin	1066280	549366   U	23180 F	1592466	34350		F	1558116
Fixed costs	226800	no effect		226800	0		no effect	226800
Operating	839480	549366   U	23180 F	1365666	34350		F	1331316
Calculation:
	Actual results	Flexible budget	Master budget
Units	231,800	231,800	226,800
Sales revenue	231,800*$10.90	231,800*$10.80	226,800*$10.80
Variable costs	231,800*$6.30	231,800*$3.93	226,800*$3.93
Fixed costs	226,800	226,800	226,800
*Flexible budget is prepared on the basis of actual unit sales.

Note:

Sales price variance = Actual results - flexible budget.

Manufacturing, marketing & Administration variance = Actual cost - Flexible costs

Sales Activity variance = Flexible budget - Planning budget.