Solved: Going into the period just ended Ortiz Co

manufacturer

Going into the period just ended, Ortiz & Co., manufacturer of a moderately priced espresso
maker for retail sale, had planned to produce and sell 3,900 units at $100 per unit. Budgeted
variable manufacturing costs per unit are $50. Ortiz pays its salespeople a 10 percent sales
commission, which is the only variable nonmanufacturing cost for the company. Fixed costs are
budgeted as follows: manufacturing, $50,000; marketing, $36,000. Actual financial results for
the period were disappointing. While sales volume was up (4,000 units sold), actual operating
profit was only $20,000 for the period. Fixed manufacturing costs were as budgeted, but fixed
marketing expenses exceeded budget by $4,000. Actual sales revenue for the period was
$390,000, and actual variable costs were $70 per unit (the actual sales commission was 10
percent of sales revenue generated).

Required
1. Develop an Excel spreadsheet that is able to produce a profit-variance report similar to the
one presented in text Exhibit 14.4.
2. Use the spreadsheet you developed in (1) and the data presented above to complete the
profit-variance report for the period. Below the table you create, show separately the following
variances:
a. Total master (static) budget variance (i.e., the total operating-income variance for the period).
b. Total flexible-budget variance.
c. Flexible-budget variance for total variable costs, plus the flexible-budget variance for:
(1) Variable manufacturing costs.
(2) Variable nonmanufacturing costs.
d. Flexible-budget variance for total fixed costs, plus the flexible-budget variance for:
(1) Fixed manufacturing costs.
(2) Fixed nonmanufacturing costs.
3. Provide a concise interpretation for each of the variances calculated above in (2).
EXHIBIT 14.4
Breakdown of Total Operating-
Income Variance

4. Using the variances you calculated above in (2), prepare in as much detail as the data allow,
a separate summary report similar to text Exhibit14.2.

ANSWER
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