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Larro Inc. manufactures a single product, Vego.Larro uses budgets and standards in its planning and control functions.Larro makes use of its standards in order to derive their standard cost per unit.For example, Exhibit A provides information on the standard variable costs per unit.When determining direct material costs for the master budget income statement, the $9.50 standard material cost per unit of Vego would be used in the calculation.

Exhibit A

Standard Variable Costs Per Unit of Vego

Raw material: 2.5 pounds at $3.80 per pound $9.50

Direct labor: 0.75 direct labor hours at $24.00 per hour 18.00

Variable overhead: 0.75 direct labor hours at $8.80 per hour 6.60

Total variable standard cost per unit of Vego $34.10

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The standards for fixed manufacturing overhead costs are: 0.75 direct labor hours at $9.00 per hour.The standard fixed manufacturing overhead cost per direct labor hour is calculated based on a denominator level of activity of 22,800 direct labor hours.

The master budget income statement is based on the expectation of selling 24,000 units of Vego.The budgeted sales price is $50.00 per unit, and total budgeted fixed selling and administrative costs are $120,000.There are no variable selling and administrative costs in this firm.

The company actually produced and sold 30,000 units this year.The company never has a beginning or ending finished goods inventory.Everything produced in the year is sold in that same year.

The actual income statement for the year is provided in Exhibit B.

Exhibit B

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Larro Inc.

Actual Income Statement

Sales:

30,000 units at $45.00 $1,350,000

Less Variable Costs:

Direct materials 302,400

Direct Labor 540,000

Variable manufacturing overhead 200,500

Contribution margin 307,100

Less Fixed Costs:

Fixed manufacturing overhead costs 180,000

Fixed selling and administrative costs 112,000

Operating profit $15,100

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Actual production data and actual manufacturing costs for the year are given in Exhibit C.

Exhibit C

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Direct materials purchased and used: 72,000 pounds at $4.20 per pound

Direct labor: 24,000 direct labor hours at $22.50/hr.

Variable overhead costs: $200,500

Fixed overhead costs: $180,000

Production 30,000 units

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Required:The solution to this case must be typed.

1.Prepare detailed income statement variance analysis using the contribution approach income statement for the year (i.e., compare the actual income statement with the flexible budget income statement and compare the flexible budget income statement with the master budget income statement).Show the variances appearing in the income statement analysis.A template for answering this question is given below.All variances should be marked with either an "F" for favorable or "U" for unfavorable.

Larro Variance Case Solution Template for Part 1

CoursHeroTranscribedText: Larro Variance Case Solution Template for Part 1~ Actual Flexible

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