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: Actual (based on actual orders for 450,000 units) Master Budget (based on budgeted orders for 480,000 units) Sales revenue $ 4,968,000 $ 4,800,000 Less Variable costs Materials 1,440,000 1,440,000 Direct labor 276,000 336,000 Variable overhead 674,400 624,000 Variable marketing and administrative 468,000 480,000 Total variable costs $ 2,858,400 $ 2,880,000 Contribution margin $ 2,109,600 $ 1,920,000 Less Fixed costs Manufacturing overhead 988,800 960,000 Marketing 288,000 288,000 Administrative 204,000 180,000 Total fixed costs $ 1,480,800 $ 1,428,000 Operating profits $ 628,800 $ 492,000 Required: Prepare a sales activity variance analysis for Osage, Inc., (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

Answer 1

Calculate sales activity variance

	Flexible budget	Sales activity variance	Master budget
Sales volume	450000		480000
Sales revenue	4500000	300000 U	4800000
Less: Variable cost
Material	1350000	90000 F	1440000
Labor	315000	21000 F	336000
Variable overhead	585000	39000 F	624000
Variable marketing and administrative	450000	30000 F	480000
Total Variable cost	2700000	180000 F	2880000
Contribution margin	1800000	120000 U	1920000
Less: Fixed cost
Manufacturing overhead	960000	0 None	960000
Marketing	288000	0 None	288000
Administrative	180000	0 None	180000
Total Fixed cost	1428000	0 None	1428000
Operating profits	372000	120000 U	492000