Question

Problem 15-20 Determining sales and variable cost volume variances LO 15-2, 15-3, 15-4

Stuart 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		8.20
Labor cost		4.10
Overhead cost		6.20
Selling, general, and administrative costs		6.30
Planned fixed costs
Manufacturing overhead	$	132,000
Selling, general, and administrative		53,000

Stuart planned to make and sell 33,000 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 32,000 and 34,000 units. Determine the sales and variable cost volume variances, assuming volume is actually 34,000 units. Indicate whether the variances are favorable (F) or unfavorable (U). (Select "None" if there is no effect (i.e., zero variance).)

Master Budget	Flexible Budgets		Volume Variances
Number of units	33,000	32,000	34,000
Variable manufacturing costs
	0	0	0
Fixed costs
	$0	$0	$0

Answer 1

Both the master budget and flexible budgets are prepared on the basis of standard price. The variable and fixed costs are bifurcated for the ease of understanding.

Volume variance is difference between master and flexible budget where F stands for favorable and U for unfavorable

	Unit Standard Price	Master Budget	Flexible Budgets		Volume Variance (34000 units) difference between master and flexible budget
		(P*Quantity)	(P*Quantity)
Number of Units		33,000	32,000	34,000
Sales Revenue	$36.90	$1,217,700	$1,180,800	$1,254,600	$36,900	F
Variable manufacturing costs
Materials	$8.20	$270,600	$262,400	$278,800	($8,200)	U
Labor	$4.10	$135,300	$131,200	$139,400	($4,100)	U
Manufacturing overhead	$6.20	$204,600	$198,400	$210,800	($6,200)	U
Variable selling, general and administrative costs	$6.30	$207,900	$201,600	$214,200	($6,300)	U
Contribution Margin		$399,300	$387,200	$411,400	$12,100	F
Fixed Costs
Manufacturing overhead		$132,000	$132,000	$132,000	$0	N
Fixed selling, general and administrative costs		$53,000	$53,000	$53,000	$0	N
Net Income		$214,300	$202,200	$226,400	$12,100	F

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