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Bannister Case: Variance Analysis

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Bannister Case

Bannister manufactures tennis rackets and uses a standard costing system. The master budget income statement for April was based on the expectation of producing 10,000 units and selling 12,000 units. The budgeted sales price was $16 per unit, and total budgeted fixed selling and administrative costs were $10,700. There are no variable selling and administrative costs in this firm. Budgeted profits under the master budget income statement are $81,580. Standard manufacturing costs used in determining costs under the master budget are listed below in Exhibit A.

Exhibit A*
Per Racket
Raw material:
Frame: 1.1 frames at $4.20 per frame $4.62
Stringing materials: 16 feet at $0.04 per foot .64
Direct labor: 0.1 hours at $18.30 per hour 1.83
Variable overhead .47
Fixed overhead .60
Total standard cost per tennis racket $8.16

*Standard costs are calculated for a production volume (denominator level of activity) of 15,000 units each month.

The company actually sold 11,100 units in April and should have generated a profit of $73,984 under the flexible budget income statement prepared under a variable cost format. (The flexible budget is not given in the problem but must be derived as part of the solution for this case.)

The accountants determined that the actual profits in April were $76,134. The income statement is provided in Exhibit B.

Exhibit B
Bannister Inc.
Income Statement for April

11,100 rackets at $16.80 $186,480
Standard cost of goods sold:
11,100 rackets at $8.16 90,576
Unfavorable Material variance 1,780
Unfavorable Labor variance 672
Unfavorable Variable Overhead variance 558
Unfavorable Fixed Overhead variance 2,260
Cost of goods sold after adjustment for variances 95,846
Gross Margin 90,634
Selling and administrative expense 14,500
Operating profit $76,134


Actual production data for April is given in Exhibit C.

Exhibit C
Direct materials purchased and used:
Stringing materials 197,200 feet at $0.045 per foot
Frames 12,900 frames at $4.18 per frame

Labor: ($18.25 per hour) 1200 hours

Variable $6,010
Fixed $9,220

Production 11,600 rackets



1. Prepare a detailed variance analysis of the contribution approach income statement (i.e., variable costing basis) for the month of April (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. (You can combine the two types of materials as a single line item in the analysis of the income statement). A template for answering this question is given below. All variances should be marked with either an "F" for favorable or "U" for unfavorable.

Bannister Comprehensive Case SolutionTemplate for Part 1

Use the following template for providing the detailed variance of the contribution approach income statement.

Actual Variance Flexible Variance Master
Sales $$$ $$$ $$$ $$$ $$$
Less V.C.
DM $$$ $$$ $$$ $$$ $$$
DL $$$ $$$ $$$ $$$ $$$
V-OH $$$ $$$ $$$ $$$ $$$
CM $$$ $$$ $$$ $$$ $$$
Less FC
Manufacturing $$$ $$$ $$$ $$$ $$$
Sell & Admin $$$ $$$ $$$ $$$ $$$
Profits $$$ $$$ $$$ $$$ $$$

2. Prepare a very detailed manufacturing cost variance analysis (e.g., calculate price, efficiency, spending, and production volume variances.) An analysis should be done for each type of direct material (ie., string and frames should be examined separately). In addition an analysis should be done for direct labor and for fixed manufacturing overhead. Do not do a variance analysis for variable overhead costs since no allocation base is given. All variances should be marked with either an "F" for favorable or "U" for unfavorable.

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Solution Summary

Your tutorial is in Excel (click in cells to see computation) and shows you how to construct the contribution margin income statement (solving for the unknowns). Notice that you use selling units for this. You also have to compute the actual costs by knowing how to add the variances to the standard costs. The classic variances are computed for materials, labor and fixed overhead (not variable overhead).

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Your tutorial is in Excel (click in cells to see computation) and shows you how to construct the ...

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