Question

"Ponca Food Corporation developed the following standard price and costs for a refrigerated TV dinner that the company produces:Standard price and variable costs per unit Sales price Materials cost Labor cost Overhead cost Selling, general, and administrative costs Planned fixed costs Manufacturing overhead cost Selling, general, and administrative costs $ 5.401.600.600.120.32LO 8-1, 8-3$160,00096,000" "Ponca plans to make and sell 400,000 TV dinners .Requireda. Prepare the pro forma income statement that would appear in the master budget.b. Prepare flexible budget income statements, assuming production and sales volumes of 360,000 and 440,000 units.c. Determine the sales and variable cost volume variances, assuming volume is actually LO 8-4380,000 units.d. Indicate whether the variances are favorable (F) or unfavorable (U).e. Comment on how Ponca could use the variances to evaluate performance"

Answer 1

Ponca Food Corporation
Answer : a
Proforma Income Statement
	Per Unit Standard
Number of units		400,000
Sales Revenue	$       5.40	$        2,160,000
Variable Manufacturing Costs
Materials	$       1.60	$         (640,000)
Labour	$       0.60	$         (240,000)
Overhead	$       0.12	$            (48,000)
Variable selling, general and administrative cost	$       0.32	$         (128,000)
Contribution Margin		$        1,104,000
Fixed Costs
Manufacturing		$         (160,000)
selling, general and administrative		$            (96,000)
Net Income		$            848,000
Answer : b
Flexible Budget Income Statement
	Per Unit Standard
Number of units		360,000	440,000
Sales Revenue	$       5.40	$        1,944,000	$           2,376,000
Variable Manufacturing Costs
Materials	$       1.60	$         (576,000)	$            (704,000)
Labour	$       0.60	$         (216,000)	$            (264,000)
Overhead	$       0.12	$            (43,200)	$               (52,800)
Variable selling, general and administrative cost	$       0.32	$         (115,200)	$            (140,800)
Contribution Margin		$            993,600	$           1,214,400
Fixed Costs
Manufacturing		$         (160,000)	$            (160,000)
selling, general and administrative		$            (96,000)	$               (96,000)
Net Income		$            737,600	$               958,400
Answer : c and d
	Per Unit Standard	Master Budget	Flexible Budget	Variances
Number of units		400,000	380,000
Sales Revenue	$       5.40	$        2,160,000	$           2,052,000	$       108,000	U
Variable Manufacturing Costs
Materials	$       1.60	$         (640,000)	$            (608,000)	$         32,000	F
Labour	$       0.60	$         (240,000)	$            (228,000)	$         12,000	F
Overhead	$       0.12	$            (48,000)	$               (45,600)	$           2,400	F
Variable selling, general and administrative cost	$       0.32	$         (128,000)	$            (121,600)	$           6,400	F
Contribution Margin		$        1,104,000	$           1,048,800	$         55,200	U
Fixed Costs
Manufacturing		$         (160,000)	$            (160,000)	-
selling, general and administrative		$            (96,000)	$               (96,000)	-
Net Income		$            848,000	$               792,800	$         55,200	U
Answer : e
The sales volume variances are useful in determining how changes in sales volume affect revenues and cost. Since the flexible budget is computed at standard prices and costs, the variances do not provide insight into differences between standard pricesand cost and actual proces and cost.