Woodside Products, Inc.3 (Profit Variance Analysis): Phil Brooks, president of Woodside Products. Inc., called Marilyn Mynar into his office one morning in early July. Ms. Mynar was a business major in college and was employed by Woodside during her college summer vacation. "Marilyn," Brooks began, "I've just received the preliminary financial state- ments for our current fiscal year, which ended June 30. Both our board of directors and our shareholders will want, and deserve, an explanation of why our pretax income was virtually unchanged even though revenues were up by more than $175,000. The accountant is tied up working with our outside CPA on the annual audit, so I thought you could do the necessary analysis. What I'd like is as much of a detailed explanation of the $1,950 profit increase as you can glean from these data (Exhibit A). Also, draft a statement for the next board meeting that explains the same $1,950 profit increase. Since the board of directors understands variable costing, I recommend that you convert everything to variable costing for the variance computations, then reconcile your variable costing numbers with the amounts shown in Exhibit A, if necessary."

Required: Prepare the detailed analysis of the $1.950 profit increase from last fiscal year to the current fiscal year and draft an explanation for Woodside's board of directors, as requested by Phil Brooks. (Hint: Let last year's amounts be budgets or standards.) Assume that finished goods inventory was valued at $24 per unit (using full-absorp- tion costing) at the end of this year.

Transcribed Image Text:

Exhibit A (20-42) WOODSIDE PRODUCTS, INC. Operating Results For the Years Ended June 30 Last Year Sales revenues Cost of goods sold Gross margin Selling and administrative Income before taxes Current Year $3,525,000 $3,701,250 2,115,000 2,310,450 1,410,000 902,400 1,390,800 881,250 $ 507,600 $ 509,550 Other Data for Last Year 1. Sales = 88,125 units @ $40. 2. Cost of goods sold 88,125 units @ $24. 3. Selling and administrative costs were $1.84 per unit variable selling cost plus $740,250 fixed S&A. 4. Production volume and sales volume were equal. 5. Production costs per unit were: Materials Direct labor Variable overhead Fixed overhead $ 9.60 (8 pounds at $1.20) 4.80 (75 hour at $6.40) 1.60 (per unit) 8.00 (based on estimated production volume of 88,125 units) $24.00 Other Current Year Data 1. Sales 78,750 units @ $47. 2. Cost of goods sold includes the current year's production cost variances. 3. Selling and administrative costs were $2 per unit variable selling cost plus $723,750 fixed S&A. 4. Actual production volume was 81,100 units; estimated volume was 88,125 units. 5. 626,200 pounds of material at $1.40 were consumed by production. 6. 64,860 direct labor-hours were worked at $6.90. 7. Actual variable overhead costs were $152.000.