|
|
|
Budget |
|
Actual |
|
Variance |
|
|
|
|
|
|
|
|
|
|
| Sales |
|
|
$1,080.00 |
|
$1,064.00 |
|
|
|
| Standard Cost of goods sold |
$960.00 |
|
$912.00 |
|
|
|
| Standard Gross Margin |
$120.00 |
|
$152.00 |
|
$32.00 |
F |
| Production Variance |
- |
|
-$94.00 |
|
$94.00 |
U |
| Actual Gross Margin |
|
$120.00 |
|
$58.00 |
|
$62.00 |
U |
| Spelling and administrative |
$45.00 |
|
$55.00 |
|
$10.00 |
U |
| Operating income |
|
$75.00 |
|
$3.00 |
|
$72.00 |
U |
Darius Company operating budget for October had anticipated pretax operating income of $75,000. Drew Mackenzie, Dariusas general manager, was therefore disappointed when, in early November, Dariusas controller gave him a report showing that only $3,000 of operating income had been earned in October (see Exhibit 1). Mr. Mackenzie asked the controller to prepare an analysis of the $72,000 unfavorable operating income variance as soon as possible.
The October budget had incorporated the standards and budgets that are given below along with actual data.
Marketing:
Budgeted sales had been 200,000 units (10 percent market share) at a unit margin of $0.60. Actual sales units were 190,000 units (9.25 percent market share) at a unit margin of $0.80. Selling expenses had been budgeted at $12,000 fixed costs for the month; $14,120 was actually incurred.
Production:
The standard production volume used for overhead absorption purposes was 200,000 units per month. October's budgeted production volume used in developing the annual operating budget had been 205,000 units, but actual October production volume turned out to be only 180,000 units. Darius's only product had a standard unit cost of $4.80, comprised of $0.60 direct material cost (4 pounds at $0.15 per pound), $2.70 direct labor cost (0.3 hour at $9.00 per hour), and $1.50 overhead ($0.75 of which was budgeted variable overhead). In October, 700,000 pounds of material were purchased for $126,000 and used in production; 56,944 direct labor-hours costing $523,880 were used; and overhead costs of $308,120 were incurred.
Assignment:
Prepare as detailed an explanation as possible of the October $72,000 unfavorable income variance