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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
    Actual

    Sales:
    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

    Overhead:
    Variable $6,010
    Fixed $9,220

    Production 11,600 rackets

    ________________________________________________________________

    Required:

    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 Preview

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

    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).

    $2.19

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