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 Materials cost Labor cost Overhead cost Selling, general, and administrative costs Planned fixed costs Manufacturing overhead Selling, general, and administrative 36.10 8.10 3.70 6.10 7.10 $131,000 49,000 Assume that Gibson actually produced and sold 34,000 books. The actual sales price and costs incurred follow: $ Actual price and variable costs Sales price Materials cost Labor cost Overhead cost Selling, general, and administrative costs Actual fixed costs Manufacturing overhead Selling, general, and administrative 35.10 8.30 3.60 6.15 6.90 $116,000 55,000 Required a. & b. Determine the flexible budget variances and also indicate the effect of each variance by selecting favorable (F) or unfavorable (U). (Select "None" if there is no effect (i.e., zero variance).) Flexible Budget Variances Sales revenue Variable manufacturing costs Materials Labor Overhead Selling, general and administrative costs Contribution margin Fixed costs Manufacturing overhead Selling, general, and administrative costs Net income

Answer 1

		Flexible Budget Variance
	Sales Revenue	$    34,000	U
Less:	Variable Manufacturing costs:
	Material cost	$      6,800	U
	Labor cost	$      3,400	F
	Overhead cost	$      1,700	U
	Variable selling general and administrative costs	$      6,800	F
	Contribution margin	$    32,300	U
Less:	Fixed Expenses
	Manufacturing overheads	$    15,000	F
	Fixed selling general and administrative cost	$      6,000	U
	Net Income	$    23,300	U
	Workings:
		Actual Budget	Flexible Budget	Flexible Budget Variance
	Books	34,000	34,000
	Sales Revenue	11,93,400	12,27,400	$      34,000	U
Less:	Variable Manufacturing costs:
	Material cost	2,82,200	2,75,400	$         6,800	U
	Labor cost	1,22,400	1,25,800	$         3,400	F
	Overhead cost	2,09,100	2,07,400	$         1,700	U
	Variable selling general and administrative costs	2,34,600	2,41,400	$         6,800	F
	Contribution margin	3,45,100	3,77,400	$      32,300	U
Less:	Fixed Expenses
	Manufacturing overheads	1,16,000	1,31,000	$      15,000	F
	Fixed selling general and administrative cost	55,000	49,000	$         6,000	U
	Net Income	1,74,100	1,97,400	$      23,300	U
		Budget amount per unit	Flexible Budget
	Books	(q)	34,000
	Sales Revenue	$      36.10	$ 12,27,400
Less:	Variable Manufacturing costs:
	Material cost	$         8.10	$   2,75,400
	Labor cost	$         3.70	$   1,25,800
	Overhead cost	$         6.10	$   2,07,400
	Variable selling general and administrative costs	$         7.10	$   2,41,400
	Contribution margin		$   3,77,400
Less:	Fixed Expenses
	Manufacturing overheads		$   1,31,000
	Fixed selling general and administrative cost		$       49,000
	Net Income		$   1,97,400
		Budget amount per unit	Actual Budget
	Books	(q)	34,000
	Sales Revenue	$      35.10	$ 11,93,400
Less:	Variable Manufacturing costs:
	Material cost	$         8.30	$   2,82,200
	Labor cost	$         3.60	$   1,22,400
	Overhead cost	$         6.15	$   2,09,100
	Variable selling general and administrative costs	$         6.90	$   2,34,600
	Contribution margin		$   3,45,100
Less:	Fixed Expenses
	Manufacturing overheads		$   1,16,000
	Fixed selling general and administrative cost		$       55,000
	Net Income		$   1,74,100