Question

Narcisco Publications established the following standard price and costs for a hardcover picture book that the company produces: Standard price and variable costs Sales price $ 90.00 Materials cost 18.00 Labor cost 9.00 Overhead cost 12.60 Selling, general, and administrative costs 14.40 Planned fixed costs Manufacturing overhead $ 270,000 Selling, general, and administrative 108,000 Narcisco planned to make and sell 30,000 copies of the book. Required a. - d. Prepare the pro forma income statement that would appear in the master budget and also flexible budget income statements, assuming production volumes of 29,000 and 31,000 units. Determine the sales and variable cost volume variances, assuming volume is actually 31,000 units. Indicate whether the variances are favorable (F) or unfavorable (U

Answer 1

Answer:

Pro Forma Income Statement                                     30,000 units

Sales($90 * 30,000)                                                     $2,700,000

Minus Variable Costs                                                   $1,620,000

  - Direct Material ($18 *30,000)=540,000

 - Direct Labor ($9*30,000) =270,000

 - Overhead cost(12.60*30,000)=378,000

 - Selling and admin (14.40*30,000)=432,000

Contribution                                                                  $1,080,000

minus Fixed Costs                                                        $378,000

- Manufacturing costs = 270,000

 - Selling and admin cost = 108,000

Net Income                                                                   $702,000

FLEXIBLE BUDGET INCOME STATEMENT

                                                        29,000 UNITS          31,000 UNITS

Sales                                             $2,610,000                 $2,790,000

Minus Variable costs                   $1,566,000                 $1,674,000

Direct Material                             $522,000                    $558,000          

Direct labor                                  $261,000                     $279,000

Overhead cost                             $365,400                    $390,600

Selling and Admin cost               $417,600                     $446,400

Contribution                                 $1,044,000                 $1,116,000

Minus Fixed Cost                         $378,000                      $378,000

 - Manufacturing cost                  $270,000                      $270,000

 - Selling and Admin cost            $108,000                      $108,000

Net Income                                   $666,000                     $738,000

Details                                 30,000 Units              31,000 Units  Variance

Sales                                   $2,700,000                $2,790,000   $90,000 F

Direct Material                    $540,000                  $558,000      $18,000 U

Direct Labor                        $270,000                  $279,000      $9,000 U

Overhead cost                   $378,000                   $390,600      $12,000 U

Selling and Admin             $432,000                   $446,400      $14,400 U

Total                                                                                              $36,600 F

Explanation: