Aldrin Inc. is a small business selling a single product, 16 oz. bags of almonds roasted with olive oil and sea salt. Aldrins relevant range of production is between 450,000 and 650,000 bags a year. Within the relevant range, variable costs per bag remains constant and total annual fixed costs are constant, as shown in Exhibit A.

Exhibit A: Budgeted (Standard) Costs
Variable costs per bag:
Direct materials (1.2 pounds at $5 per pound of raw almonds)	$6
Direct labor (0.05 direct labor hour at $20 per hour)	$1
Variable mfg. overhead (0.05 direct labor hour at $8 per hour)	$0.40
Selling and administrative expenses	$0.60
Fixed costs per year:
Mfg. overhead	$800,000
Selling and administrative expenses	$450,000

Aldrin uses budgets and standards in its planning and control functions. Aldrin makes use of its standards in order to derive their budgeted costs per bag of roasted almonds. For example, when determining direct material costs for the planning budget income statement, the $6 budgeted direct material cost per bag in Exhibit A would be used in the calculation.

The planning budget income statement is based on the expectation of selling 500,000 bags of roasted almonds, resulting in a denominator level of activity of 25,000 direct labor hours. The budgeted selling price is $12 per bag.

The company actually produced and sold 540,000 bags at $11.40 per bag this year. The company never has a beginning or ending raw materials inventory, because it uses all raw materials purchased. Also, 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: Aldrin Inc.
Actual Income Statement
Sales (540,000 bags produced and sold at $11.4 per bag)	$6,156,000
Less Variable Costs:
Direct materials (702,000 pounds at $4.3 per pound)	3,018,600
Direct labor (32,400 direct labor hours at $17 per hour)	550,800
Variable manufacturing overhead	272,160
Variable selling and administrative costs	270,000
Contribution margin	2,044,440
Less Fixed Costs:
Fixed manufacturing overhead costs	768,000
Fixed selling and administrative costs	455,000
Net operating income	$821,440

Required:

1. Prepare a 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 planning budget income statement). Show all the revenue, spending, and activity 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. (30 points)

Aldrin Variance Case Solution Template for Part 1

	Actual		Revenue & Spending		Flexible	Activity		Planning
	Results		Variances		Budget	Variances		Budget
Sales	$$$		$$$		$$$	$$$		$$$
Less V.C.
DM	$$$		$$$		$$$	$$$		$$$
DL	$$$		$$$		$$$	$$$		$$$
V-MOH	$$$		$$$		$$$	$$$		$$$
V-S&A	$$$		$$$		$$$	$$$		$$$
CM	$$$		$$$		$$$	$$$		$$$
Less FC
F-MOH	$$$		$$$		$$$	$$$		$$$
F-S&A	$$$		$$$		$$$	$$$		$$$
NOI	$$$		$$$		$$$	$$$		$$$