The master budget at Western Company last period called for sales of 225,000 units at $9 each. The costs were estimated to be $3.75 variable per unit and $225,000 fixed. During the period, actual production and actual sales were 230,000 units. The selling price was $9.10 per unit. Variable costs were $4.50 per unit. Actual fixed costs were $225,000. Required: Prepare a profit variance analysis. (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.)

Profit variance analysis of Western company is as under: Western Company Profit Variance Analysis Particulars Reported income statement (230000 units) Manufacturing variance Sales price variance Flexible budget (230000 units) Sales activity variance Master budget (225000 units) Sales revenue $2,093,000.00 $23,000.00 F $2,070,000.00 $45,000.00 F $2,025,000.00 Less: Variable costs $1,035,000.00 $172,500.00 U $862,500.00 $18,750.00 U $843,750.00 Contribution margin $1,058,000.00 $172,500.00 U $23,000.00 F $1,207,500.00 $26,250.00 F $1,181,250.00 Less: fixed costs $225,000.00 $225,000.00 $225,000.00 Operating profits $833,000.00 $172,500.00 U $23,000.00 F $982,500.00 $26,250.00 F $956,250.00

Answered: The master budget at Western Company last period called for sales of 225,000 units at $9 each. The costs were estimated to be $3.75 variable per unit and…

FINANCIAL ACCOUNTING

10th Edition

ISBN: 9781259964947

Author: Libby

Publisher: MCG

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Question

Prepare a profit variance analysis. (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.)

The image presents a problem involving budget variance analysis for Western Company. The master budget anticipated sales of 225,000 units at $9 each, with a cost structure of $3.75 variable cost per unit and $225,000 fixed costs. However, actual production and sales were 230,000 units with a selling price of $9.10 per unit. Variable costs were $4.50 per unit, and actual fixed costs were $225,000.

**Task:**
Prepare a profit variance analysis using the table provided. Indicate whether each variance is favorable ("F") or unfavorable ("U"). If there is no effect, do not select any option.

**Table Breakdown:**

- **WESTERN COMPANY**
**Profit Variance Analysis**
The table consists of six columns:
1. **Actual Budget**
2. **Manufacturing Variances**
3. **Sales Price Variance**
4. **Flexible Budget**
5. **Sales Activity Variance**
6. **Master Budget**

**Rows for Analysis:**
- Sales revenue
- Less: Variable costs
- Contribution margin
- Less: Fixed costs
- Operating profits

Each section of the table is meant to calculate and compare the financial outcomes based on actual figures versus budgeted figures, enabling a clearer assessment of where variances occurred and categorizing them as either favorable or unfavorable.

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