Hanson Company - B Case

The Board adopted a budget for 2021 based on an annual sales volume projection of 890,000

units. The Board acknowledged that it would be a challenge to increase production to the level

of 890,000 in 2021, and this was their most optimistic forecast. While the budget assumed no

change from 2019 in unit selling prices and unit variable costs, and total fixed costs, the Board

resolved to look for new initiatives to improve profitability. Sales are made at a uniform rate

throughout the year with no seasonal variation. The amount of inventory on hand at the

beginning of 2021 was negligible. The budget the adopted by the Board is presented in the

Budget Column in Exhibit 2 below.

Assume that the first six months of 2021 have passed, and the Board requested that their

accountanthave an income statement for the first six months of 2021 showing how actual

performance compared to budgeted data.

Assume the analysis presented in Exhibit 2 was provided to the Board by the accountant.

Hanson incurs fixed costs uniformly throughout the year.

EXHIBIT 2

BUDGET ANALYSIS FOR THE FIRST SIX MONTHS ENDED JUNE 30, 2021

Budget Actual Variance

Sales units 445,000 460,000

Sales $ 1,824,500 $ 1,863,000 $38,500

Variable costs $ 694,200 $ 690,000 $ 4,200

Contribution margin $ 1,130,300 $ 1,173,000 $42,700

Fixed costs (6 months) $ 1,052,960 $ 1,051,600 $ 1,360

Net Income $ 77,340 $ 121,400 $44,060

Question :

Total actual net income is substantially higher than budgeted net income. Based on the

information provided, analyze the operations for the six months ended June 30, 2021, explaining

in detail the causes of the difference between budgeted and actual net income. Every significant

factor should be included in your analysis.