Best Company, Inc

...

The report provides the actual number of pieces sold in July vs. budget along with average selling price, average variable cost per unit sold.

A flexible budget was prepared based on actual volume and budgeted price per piece to determine the variances between sales, variable costs and contribution margin.

As the Controller, your job is to prepare a summary for the CFO that highlights the following:

- Briefly explain the month end results to budget for the following categories:

- # of pieces sold to budget=68,195

- The variance to budget= 8,645

- Highlight if the variance is favorable or unfavorable to budget=Favorable

- The percent change of actual pieces to budgeted pieces.=8645/68195=12.7%

- Briefly explain the month end results to budget for the following categories:

- Average sales price per unit: Actual: $90.15 per unit Budget:$90.93 per unit

- The variance to budget= $0.75 per unit

- Highlight if the variance is favorable or unfavorable to budget: Unfavorable

- The percent change of avg. SP actual to budget= -$0.78/90.93%=-0.857%

- Briefly explain the month end results to budget for the following categories:

- Average avg. variable cost per unit: Actual: $61.03 Budgeted: $59.83

- The variance to budget: $1.20 per unit

- Highlight if the variance is favorable or unfavorable to budget: Unfavorable

- The percent change of avg. VC actual to budget: -1.2/59.83%=-2%

- Briefly explain the month end results to budget for the following categories:

- Average contribution margin per piece: Actual:32.3% Budgeted:34.2%

- The variance to budget= -1.91%

- Highlight if the variance is favorable or unfavorable to budget: Unfavorable

- The percent change of avg. CM per piece actual to budget:-1.91/34.2%=-5.58%

- Briefly discuss the sales performance in dollar terms to budget and the overall variance performance to budget by highlighting:

- Total Variance in sales dollars to budget, favorable or unfavorable variance to budget.

- Based on the sales volume variance formula, explain the two variances that make up the total variance. The difference between actual sales and flexible budget is the PRICE VARIANCE and the difference between the flexible budget and the master budget is the QUANTITY VARIANCE.

- Explain what components are driving the overall variance to be favorable or unfavorable and the components that are driving price variance or efficiency (quantity) variance.

- Do this same analysis for Sales, Variable Costs and Contribution Margin. Apply your knowledge of direct material and direct labor variance formulas and flexible budgeting to explain the overall variance and the components of both price and efficiency variance analysis.

Answers to Part 5:

Net Sales Actual: $6,927,282.05

Net Sales Budgeted: 6,201,253.60

Variance of Actual to Budgeted Sales= $726,028.45 Favorable

Percentage change of actual to budgeted sale: 726,028.45/6,201,253.60=11.70%

Sales Variance Total=-0.78*76,840=-60,097.18

Quantity Vaariance: 8645*90.93= 786,125.63

Total Variance: -60,097.18 + 786,125.63= 726,028.45

The negative SP Variance makes the overall sales value negative but it is recovered by the huge positive quantity variance to have a net positive sales variance against the budget. Similarly, variable cost variance and SP variance are unfavorable attributing to the contribution margin being negative which is partially