Crafts Inc., is a manufacturer of furniture.

The company has 2 responsibility centers: Production and Selling and Distribution.

Production and administration are cost centers while Selling and Distribution is a profit center.

Presented below are the budgeted and actual contribution income statement for October along with applicable unit information.

Budgeted unit information:

Units

900

Sale price per unit

$250

Direct material per unit

$50

Direct labor per unit

$20

Variable manufacturing overhead per unit

$15

Variable selling and distribution per unit

60

Actual Units:

1,000

Craft Inc.

Budgeted Contribution Income Statement

For Month of October

Sales

$ 225,000

Less Variable costs

Variable cost of goods sold:

Direct materials

$ 45,000

Direct labor

18,000

Manufacturing overhead

13,500

$ 76,500

Selling and distribution

54,000

(130,500)

Contribution Margin

94,500

Less Fixed Costs:

Manufacturing overhead

40,000

Selling and Distribution

30,000

(70,000)

Net Income

24,500

Craft Inc.

Actual Contribution Income Statement

For Month of October

Sales

$ 275,000

Less Variable costs

Variable cost of goods sold:

Direct materials

$ 50,000

Direct labor

25,000

Manufacturing overhead

20,000

$ 95,000

Selling and distribution

88,000

(183,000)

Contribution Margin

92,000

Less Fixed Costs:

Manufacturing overhead

38,000

Selling and Distribution

40,000

(78,000)

Net Income(Loss)

14,000

Required:

1. Prepare a flexible budget performance report for Production that compares actual and allowed costs.

2. Prepare a flexible budget performance report for selling and distribution that compares actual and allowed costs.

3. Determine the revenue variance.

4. Determine the sales price variance.

5. Determine the sales volume variance.

6. Explain to management the areas that should be investigated. You should also include why the actual income is less than budgeted Explain why you picked these areas to look at.