Question

Osage, Inc., manufactures and sells lamps. The company produces only when it receives orders and, therefore, has no inventories. The following information is available for the current month:

	Actual (based on actual orders for 450,000 units)						Master Budget (based on budgeted orders for 480,000 units)
Sales revenue		$	4,968,000					$	4,800,000
Less
Variable costs
Materials			1,440,000						1,440,000
Direct labor			276,000						336,000
Variable overhead			674,400						624,000
Variable marketing and administrative			468,000						480,000
Total variable costs		$	2,858,400					$	2,880,000
Contribution margin		$	2,109,600					$	1,920,000
Less
Fixed costs
Manufacturing overhead			988,800						960,000
Marketing			288,000						288,000
Administrative			204,000						180,000
Total fixed costs		$	1,480,800					$	1,428,000
Operating profits		$	628,800					$	492,000

Required:

Prepare a profit variance analysis for Osage, Inc. (Do not round intermediate calculations. 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

	Actual 450,000 units	Budget 480,000 units	Variance	Fav/Unfav	Budget 450,000 units	Variance	Fav/Unfav
Sales revenue	4,968,000	4,800,000	168,000	F	4,500,000	468,000	F
Less
Variable costs
Materials	1,440,000	1,440,000	0		1,350,000	90,000	U
Direct labor	276,000	336,000	-60,000	F	315,000	-39,000	F
Variable overhead	674,400	624,000	50,400	U	585,000	89,400	U
Variable marketing and administrative	468,000	480,000	-12,000	F	450,000	18,000	U
Total variable costs	2,858,400	2,880,000	-21,600	F	2,700,000	158,400	U
Contribution margin	2,109,600	1,920,000	189,600	F	1,800,000	309,600	F
Less
Fixed costs
Manufacturing overhead	988,800	960,000	28,800	U	960,000	28,800	U
Marketing	288,000	288,000	0		288,000	0
Administrative	204,000	180,000	24,000	U	180,000	24,000	U
Total fixed costs	1,480,800	1,428,000	52,800	U	1,428,000	52,800	U
Operating profits	628,800	492,000	136,800	F	372,000	256,800	F