Profit Variance Analysis
Use the information from Exercise 16 22 to prepare a profit variance analysis for Data 2 Go like the one in Exhibit 16.5.
Exercise 16 22: Prepare Flexible Budget
Data 2 Go manufactures and sells flash drives. The company produces only when it receives orders and, therefore, has no inventories. The following information is available for the current month:
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Actual (based on actual of 750,000 units) |
Master Budget (based on budgeted 800,000 units) |
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Sales revenue |
$6,210,000 |
$6,000,000 |
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Less |
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Variable costs |
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Blank flash drives |
1,800,000 |
1,800,000 |
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Direct labor |
345,000 |
420,000 |
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Variable overhead |
843,000 |
780,000 |
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Variable marketing and administrative |
585,000 |
600,000 |
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Total variable costs |
$3,573,000 |
$3,600,000 |
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Contribution margin |
$2,637,000 |
$2,400,000 |
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Less |
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Fixed costs |
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Manufacturing overhead |
1,236,000 |
1,200,000 |
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Marketing |
360,000 |
360,000 |
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Administrative |
255,000 |
225,000 |
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Total fixed costs |
$1,851,000 |
$1,785,000 |
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Operating profits |
$ 786,000 |
$ 615,000 |
Required
Prepare a flexible budget for Data 2 Go.
Exhibit 16.5 Profit Variance Analysis, August—Bayou Division
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(1) |
(2) |
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(3) |
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(4) |
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(5) |
(6) |
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(7) |
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Flexible |
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Master Budget |
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Actual (based |
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Budget (based |
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(based on |
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on actual |
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Marketing and |
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on actual |
Sales |
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planned |
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activity of |
Manufacturing |
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Administrative |
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Sales Price |
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activity of |
Activity |
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activity of |
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80,000 units) |
Variances |
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Variances |
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Variance |
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80,000 units) |
Variance |
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100,000 units) |
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Sales revenue |
$ 840,000 |
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$ 40,000 |
F |
$ 800,000 |
$ 200,000 |
U |
$ 1,000,000 |
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Less |
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Variable costs |
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6 |
Variable manufacturing costs |
329,680 |
$ 25,680 |
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a |
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304,000 |
76,000 |
F |
380,000 |
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Variable selling and administrative |
68,000 |
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$ 4,000 |
F |
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72,000 |
18,000 |
F |
90,000 |
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Contribution margin |
$ 442,320 |
$ 25,680 |
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$ 4,000 |
F |
$ 40,000 |
F |
$ 424,000 |
$ 106,000 |
U |
$ |
530,000 |
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Fixed costs |
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Fixed manufacturing overhead |
195,500 |
4,500 |
F |
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200,000 |
–0– |
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200,000 |
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Fixed selling and administrative costs |
132,320 |
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7,680 |
F |
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140,000 |
–0– |
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140,000 |
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Profit |
$ 114,500 |
$ 21,180 |
U |
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$ 11,680 |
F |
$ 40,000 |
F |
$ |
84,000 |
$ 106,000 |
U |
$ |
190,000 |
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13 |
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14 |
aThe individual cost variances are shown in Exhibit 16.11. |
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15 |
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Exhibit 16.11 Variable Manufacturing Cost Variance Summary, August—Bayou Division
in Exhibit 16.5. The cost variance analysis just completed is a more detailed analysis of the variable production cost variance derived in Exhibit 16.5.
A summary of this nature is useful for reporting variances to high level managers. It provides both an overview of variances and their sources. When used for reporting, the computations at the right of Exhibit 16.11 usually are replaced with a brief explanation of the cause of the variance.
Management might want more detailed information about some of the variances. Extending each variance branch in Exhibit 16.11 to show variances by product line, department, or other categories can provide this additional detail.