Profit Variance Analysis
Refer to the data in Problem 16 46. Prepare a profit variance analysis for Hayden Corporation like the one in Exhibit 16.5.
Problem 16 46: Prepare Flexible Budget
Hayden Corporation provides you with the following information for the month of June:
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Actual (based on |
Master Budget (based |
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actual sales of |
on budgeted sales of |
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21,000 units) |
20,000 units) |
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Sales revenues |
$1,155,000 |
$1,200,000 |
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Less |
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Variable costs |
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Direct material |
147,000 |
120,000 |
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Direct labor |
136,500 |
160,000 |
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Variable overhead |
158,500 |
160,000 |
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Marketing |
51,000 |
50,000 |
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Administration |
47,000 |
50,000 |
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Total variable costs |
$ 540,000 |
$ 540,000 |
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Contribution margin |
$ 615,000 |
$ 660,000 |
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Fixed costs |
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Manufacturing |
256,000 |
250,000 |
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Marketing |
57,000 |
50,000 |
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Administration |
203,000 |
$ 200,000 |
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Total fixed costs |
$ 516,000 |
$ 500,000 |
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Operating profits |
$ 99,000 |
$ 160,000 |
Required
Prepare a flexible budget for Hayden Corporation for June.
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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5 |
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 |
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$ |
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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12 |
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.