Holligan Publications established the following standard price and costs for a h

Question

Holligan Publications established the following standard price and costs for a hardcover picture book that the company produces.

Standard price and variable costs:
sales price $37.00
materials 8.70
labor 4.30
overhead 6.10
general, selling & administrative 6.50

Planned fixed costs:
manufacturing $128,000
general, selling & administative 49,000

Holligan planned to make and sell 30,000 copies of the book.

Required

a. Prepare the pro forma income statement that would appear in the master budget.

b. Prepare flexible budget income statements, assuming volumes of 29,000 and 31,000 units.

c. Determine the sales and variable cost volume variances, assuming volume is actually 31,000 units.

d. Indicate whether the variances are favorable (F) or unfavorable (U).

e. Comment on how Holligan could use the variances to evaluate performances.

Explanation / Answer

For 30000

Per Unit

Units

For 31000

Per Unit

Units

Units

1147000

176400

For 30000

Per Unit

Units

Sales Price 37 1110000 Material 8.7 261000 Labour 4.3 129000 Overheads 6.1 183000 General selling & administrative Exp 6.5 195000 Total Variable cost 25.6 768000 Contribution 11.4 342000 Fixed Costs(128000 +49000) 177000 177000 Total cost 945000 Net Income 165000

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