Required:
1. Develop a flexible budget profit plan (income statement) for 2016 listing all revenues and expenses in a contribution margin format.
2. Determine the sales price and sales volume variances (calculate the sales volume variance based on budgeted contribution margin).
3. Determine the material price and quantity variances for fiberglass compound. The price variance should be computed on materials purchased.
4. Determine the direct labor rate and efficiency variances.
5. Compute the variable manufacturing overhead spending (flexible budget) variance.
6. Compute the fixed manufacturing overhead budget variance.
Mary Busta opened Row On Inc.. in 2012. Rov. On is a small company that manufactures one model of fiberglass row boat. The following information relates to budgeted and actual production for Ham's company during 2016.
Standard cost for one row boat is as follows:
Direct material:
Fiber glass compound 6 gallons @$24.00/gallon $ 144.00
Direct labor: 2 hours @$25.00/hour $ 50.00
Variable overhead: $6.00/direct labor hour $ 12.00
Fixed overhead: $240,000 per year (applied using direct labor hours)
$60/dlh = $240,000/4,000 dlh
Budget production and sales 2,000 row boats
Budget selling price $500.00/row boat
Other Information:
Variable Selling and Administrative costs
shipping $ 50 per row boat
commissions (4% of selling price) $ 20 per row boat
Fixed Selling and administrative costs $125,000 per year
Row On Inc., planned sales for 2016 2,000 row boats
During 2016:
Actual units produced and sold = 1,800 row boats
Actual selling price = $480.00 row boat.
12,000 gallons of fiberglass compound were purchased costing $285,000 and 11,160 gallons were used in production.
Direct labor cost for 2016 was $88,320 and 3,450 hours direct labor hours during the year.
Actual manufacturing overhead costs incurred in 2016 were:
Variable overhead = $ 21,960
Fixed overhead = 232,875
Total = $ 254,835
Actual Selling and administrative costs incurred in 2016 were:
Shipping costs $ 93,600
Commissions $ 34,560
Fixed Selling and Administrative $123,500