Problem 16-54 Sales Activity Variance (LO 16-3) The results for July for Brahms
ID: 2523077 • Letter: P
Question
Problem 16-54 Sales Activity Variance (LO 16-3) The results for July for Brahms & Sons follow: Actual (based on actual sales of 55,000 units) Master Budget (based on budgeted sales 50,000 units) Sales revenue $ 465,000 $ 575,000 Less Variable costs Direct material 60,300 63,000 Direct labor 56,100 79,000 Variable overhead 64,900 79,000 Marketing 21,900 35,000 Administrative 20,300 35,000 Total variable costs $ 223,500 $ 291,000 Contribution margin $ 241,500 $ 284,000 Less Fixed costs Manufacturing 103,900 103,000 Marketing 24,300 35,000 Administrative 82,700 95,000 Total fixed costs $ 210,900 $ 233,000 Operating profits $ 30,600 $ 51,000 Required: Prepare a sales activity variance analysis for Brahms & Sons. (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.)
Explanation / Answer
Ans. Particulars Master budget Flexible budget Activity Variance 50000 units 55000 units Sales 575000 632500 57500 F less: variable costs: Direct material 63000 69300 6300 U Direct labor 79000 86900 7900 U Variable overhead 79000 86900 7900 U Marketing 35000 38500 3500 U Administrative 35000 38500 3500 U Total variable cost 291000 320100 29100 U Contribution 284000 312400 28400 F Less: Fixed cost: Manufacturing 103000 103000 0 no effect Marketing 35000 35000 0 no effect Administrative 95000 95000 0 no effect Total Fixed cost 233000 233000 0 no effect Operating profits 51000 79400 28400 F *Calculation of flexible budget: Flexible budget (55000) Sales (575000/50000*55000) less: variable costs: Direct material (63000/50000*55000) Direct labor (79000/50000*55000) Variable overhead (79000/50000*55000) Marketing (35000/50000*55000) Administrative (35000/50000*55000) Total variable cost (291000/50000*55000) Contribution (284000/50000*55000) Less: Fixed cost: Manufacturing 103000 Marketing 35000 Administrative 95000 Total Fixed cost 233000 *Flexible budget is prepared on the basis of actual units produced and sold. *Fixed cost are same as master budget. *Activity Variance = Master budget - Flexible budget *Increase in Sales, Contribution margin & Operating profit = favorable. *Decrease in Sales, Contribution margin & Operating profit = Unfavorable. *Increase in Variable cost & Fixed cost = Unfavorable. *Decrease in Variable cost & Fixed cost = favorable.