"I do not know what went wrong in July. We budgeted to have a profit of $106,000 for the month from the sales of Brewer, but we actually only had a profit of less than $10,000. What I don't understand is that we sold more bags of Brewer and at a higher price than budgeted. We also paid less per kg for our raw material than budgeted and our average rate per hour for direct labour was lower than budgeted. On top of that, our variable manufacturing overhead rate and our fixed manufacturing overhead cost were less than budgeted. We did everything to increase sales and lower costs. How can we still have so much less profit than budgeted?"

The above is a quote from Sarah Noreen, financial manager at Durham Inc., a company that manufactures and sells various chemicals, including Brewer. She is looking at the following summarized statement of revenues and expenses for relating to Brewer for July: (Image)

Budget Actual Sales $1,900,000 $1,932,750 Manufacturing costs Direct mate rial 600,000 62 9,433 Direct labour 880,000 1,008,113 Variable manufacturing overhead 164,000 188,181 Fixed manufacturing overhead 150 000 150 000 1 794 000 1 975 727 Prot 5 106.000 5 7,023 The company uses a standatd costing system. The standard sales and cost information for one bag of Brewer is as follows: Sales price per bag $19.00 Direct materials 3.00kg at $2.00 per kilogram Direct labour 0.40 hours at $22.00 per hour Variable manufacturing overhead $4.10 per direct Eabour hour Durham Inc. budgeted to sell 100,000 bags in July, but actually sold 103,000 bags at an average price of $19.25 per bag. Other actual quantities and costs were: Direct materials 3.15kg at $1.94 per kilogram Direct labour 0.45 hours at $21.75 per hour Variable manufacturing overhead $4.06 per direct labour hour