Osage, Inc., manufactures and sells lamps. The company produces only when it rec

Question

Osage, Inc., manufactures and sells lamps. The company produces only when it receives orders and, therefore, has no inventories. The following information is available for the current month:

  

Required:

Prepare a profit variance analysis for Osage, Inc.,

Actual (based on actual orders for 455,000 units) Master Budget (based on budgeted orders for 490,000 units) Sales revenue $ 4,973,000 $ 4,900,000 Less Variable costs Materials 1,465,000 1,470,000 Direct labor 281,000 343,000 Variable overhead 674,900 637,000 Variable marketing and administrative 478,000 490,000 Total variable costs $ 2,898,900 $ 2,940,000 Contribution margin $ 2,074,100 $ 1,960,000 Less Fixed costs Manufacturing overhead 989,800 960,500 Marketing 293,000 288,500 Administrative 209,000 180,500 Total fixed costs $ 1,491,800 $ 1,429,500 Operating profits $ 582,300 $ 530,500

Explanation / Answer

Profit variance analysis for Osage, Inc. is as prepared below:

Working:

OSAGE, INC. Profit Variance Analysis Actual Manufacturing Variances Marketing and Administrative Variances Sales Price Variance Flexible Budget Sales Activity Variance Master Budget A B C A-B A-B A-B B-C Sales revenue $ 4,973,000 $ 423,000 F 4550000 $ -350,000 U $ 4,900,000 Variable costs: Materials 1,465,000 100,000 U 1365000 $ -105,000 F 1,470,000 Direct labor 281,000 -37,500 F 318500 $ -24,500 F 343,000 Variable overhead 674,900 83,400 U 591500 $ -45,500 F 637,000 Variable marketing and administrative 478,000 23,000 U 455000 $ -35,000 F 490,000 Total variable costs $ 2,898,900 145,900 U 23,000 U $ 2,730,000 $ -210,000 F $ 2,940,000 Contribution margin $ 2,074,100 145,900 U 46,000 U $ 423,000 F $ 1,820,000 $ -140,000 F $ 1,960,000 Fixed costs: Manufacturing overhead 989,800 29,300 U 960500 $ 0 None 960,500 Marketing 293,000 4,500 U 288500 $ 0 None 288,500 Administrative 209,000 28,500 U 180500 $ 0 None 180,500 Total fixed costs $ 1,491,800 57,800 U 4,500 U $ 1,429,500 $ 0 None $ 1,429,500 Operating profits $ 582,300 203,700 U 50,500 U $ 423,000 F $ 390,500 $ -140,000 U $ 530,500

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