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Sub: Finance Question: Profit Performance Effects Topic: Managerial Accounts The Markley Division of Rosette Industries manufactures and sells patio chairs. A status report had been sent to corporate management toward the end of the second month indicating that divisional operating income for the first quarter would probably be about 45 percent below budget. .000 plastic chairs and 22.500 metal chairs. The chairs are manufactured in two versions: a metal model and a plastic model of a lesser quality. The division management and sales department occupy the third building on the property. The division management includes a division controller responsible for the divisional financial activities and the preparation of reports explaining the differences between actual and budgeted performance. customers purchase both the metal and plastic versions.classof1. The controller structures these reports such that the sales activities are distinguished from cost factors so that each can be analyzed separately. The company uses its own sales force to sell the chairs to retail stores and to catalog outlets. The costs incurred by each assembly line is also presented as Table 2. Generally. this estimate was just about on target. The chairs are manufactured on two different assembly lines located in ad-joining buildings.com/homework-help/finance *The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not for submitting the same in lieu of their academic submissions for grades. the Markley Division manufactured 55. The budget for the current year was based upon the assumption that Markley Division would maintain its present market share of the estimated total patio chair market (plastic and metal combined). The operating results for the first three months of the fiscal year as compared to the budget are presented in Table I. The division's operating income was below budget even though industry volume for patio chairs increased by 10 percent more than was expected at the lime the budget was developed. (see Table I) During the quarter. www.
300 43.000 $500.classof1.200 $172.600) (1.200) (2.000 17.000) Actual Sale in units Plastic model Metal model Sales revenue Plastic model Metal model Total sales Less variable costs Manufacturing (at standard) Plastic model Metal model Selling Commissions Bad debt allowance Total variable costs (except variable manufacturing variances) Contribution margin (except variable manufacturing variances) Less other costs Variable manufacturing costs variances from standards Fixed manufacturing costs Fixed selling & admin.300) $194.200 38.000 36.700 $ 49.000 $875.000 46.000 $ 55.000 20.750) (550) $735.500 18.500) (1.000 $(80. costs Corporation offices allocation Total other costs 60.500 $155.000 375.000 5630.800 s_ 48.500 $101. TABLE 1 Markley Division Operating Results for the First Quarter Favorable (unfavorable) relative to the Budget budget 50.000 50.000 $400.300) www.500 $(49.Sub: Finance Topic: Managerial Accounts The standard variable manufacturing costs per unit and the budgeted monthly fixed manufacturing costs established for the current year are presented below.500 $ 21.000 (5.000 250.000 §480.000 25.000 (75.000) 5930.com/homework-help/finance *The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not for submitting the same in lieu of their academic submissions for grades.600 49.750 8.000 10.800 5702.500 $(33. .000) -200.000 300.000) $(54.000 $130.500 9.750 (2.
000 23. Depreciation Property taxes and other items 43.000 55.600 hours @ $8. Actual Manufacturing Costs Raw Materials (stated in equivalent finished chairs) Purchases Plastic Metal Usage Plastic Metal 60.280.00.000 1.900 18.300 www.400 $ 71.000 $6.000 1.000 12.000 Direct labor 9. $(32.000 14.800 44.000 30.800 $180.00 55.000 Quantity Price Plastic Model Metal Model 138.000 $5.000 9.000 .000 11.600) TABLE 2.000 12.00 per hour 5.000 $6.000 15.classof1.300 hours @ $6.Sub: Finance Divisional operational income Topic: Managerial Accounts $ 38.com/homework-help/finance *The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not for submitting the same in lieu of their academic submissions for grades. .00 56.00 per hour Manufacturing overhead Variable Supplies Power Employee benefits Fixed Supervision .000 19.000 50.65 $339.
500 3.00 2. . www.000 600 $9.00 per DLH ¼ hour @ $8.classof1.00 2.000 400 $6.00 $10.00 1.00 per DLH ¼ hour @ $8.00 $6.00 per DLH $5.00 per DLH Standard variable manufacturing cost per unit $8.00 Identify the major cause of Markley Division’s unfavorable profit performance.00 Budgeted fixed costs per month Supervision Depreciation Property taxes and other items Total budgeted fixed costs for month $4.Sub: Finance Topic: Managerial Accounts Plastic Model MetalModel Raw Material Direct labor 1/6 hour @ $6.500 4.com/homework-help/finance *The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not for submitting the same in lieu of their academic submissions for grades.100 $3.900 2.00 Variable overhead 1/6 hour @ $32.
000 Metal Budgeted 25.500 23. . The variable manufacturing overhead has been applied on the basis of the units sold. Although the increased sales of the plastic chairs improved the contribution margin by $21. This under-application has resulted in an unfavourable variance. units manufactured and the number of units actually sold as follows: Plastic Budgeted Sales Manufactured Usage 50.600 against the contribution of the division has brought down the profit.com/homework-help/finance *The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not for submitting the same in lieu of their academic submissions for grades. the charging of variable manufacturing cost variance of $49.000 Actual 20. actual expenses incurred were more than the amount applied based of standard variable cost per unit sold. But.Sub: Finance Solution: Topic: Managerial Accounts The major cause for the unfavorable profit performance is the Variable manufacturing cost variance of $49. equivalent units.classof1.000 Actual 60.000 55.000 The above-mentioned differences in units and the difference in the actual manufacturing costs per unit with the standard costs per unit give rise to variances. www.000 56.700. There is difference in the budgeted sales units.000 22.600.
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