You are a manager for Peyton Approved, a pet supplies manufacturer. This responsibility requires you to create budgets, make pricing decisions, and analyze the results of operations to determine if changes need to be made to make the company more efficient.
You will be preparing a budget for the quarter July through September 2015. You are provided the following information. The budgeted balance sheet on June 30, 2015, is:
Sales were 20,000 units in June 2015.
Forecasted sales in units are as follows: July, 18,000; August, 22,000; September, 20,000; October, 24,000. The product selling price is $18.00 per unit and its total product cost is $14.35per unit.
2. The June 30 finished goods inventory is 16,800 units.
3.Going forward, company policy calls for a given months ending finished goods inventory to equal 70% of the next month's expected unit sale.
4. The June 30 raw materials inventory is 4,600units. The budgeted September 30 raw materials inventory is 1,980 units. Raw materials cost $7.75perunit. Each finished unit requires 0.50 units of raw materials. Company policy calls for a given month's ending raw materials inventory to equal 20% of the next month's materials requirements.
5. Each finished unit requires 0.50 hours of direct labor at a rate of $16 per hour.
6. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $1.35 per unit produced. Depreciation of $20,000 per month is treated as fixed factory overhead.
7. Monthly general and administrative expenses include $12,000 administrative salaries and 0.9% monthly interest on the long-term note payable.
8. Sales representatives 'commissions are 12% of sales and are paid in the month of the sales. The sales manager's monthly salary is $3,750 per month.
The actual quantity of material used was 31,000 with an actual cost of $7.75 per unit.
The actual labor hours were 33,000 with an actual rate per hour of $15.
1. Develop a variance analysis including a budget variance performance report and appropriate variances for materials and labor
Use the budget variance student worksheet provided.
2. In your budget variance report, discuss each variance. What does the variance tell you?
3. In addition, your budget variance report should cover the following: What needs to be investigated to determine the reason for the variance? Why?