Golden Food Products produces special-formula pet food. The company carries no inventories. The master budget...
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Accounting
Golden Food Products produces special-formula pet food. The company carries no inventories. The master budget calls for the company to manufacture and sell 138,000 cases at a budgeted price of $60 per case this year. The standard direct cost sheet for one case of pet food follows:
Direct materials
(3 pounds @ $2)
$ 6
Direct labor
(0.25 hours @ $32)
8
Variable overhead is applied based on direct labor-hours. The variable overhead rate is $16 per direct labor-hour. The fixed overhead rate (at the master budget level of activity) is $10 per unit. All nonmanufacturing costs are fixed and are budgeted at $2.2 million for the coming year.
At the end of the year, the costs analyst reported that the sales activity variance for the year was $336,000 favorable.
The following is the actual income statement (in thousands of dollars) for the year for Golden Food Products:
Sales revenue
$ 9,300
Less variable costs
Direct materials
926
Direct labor
1,127
Variable overhead
590
Total variable costs
$ 2,643
Contribution margin
$ 6,657
Less fixed costs
Fixed manufacturing overhead
1,435
Nonmanufacturing costs
2,128
Total fixed costs
$ 3,563
Operating profit
$ 3,094
Required:
Prepare a profit variance analysis.
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