I just dont understand these financial statements at all! exclaimed Mr. Elmo Knapp. Mr. Knapp explained that he had turned over management of Racketeer, Inc., a division of American Recreation Equipment, Inc., to his son, Otto, the previous month. Racketeer, Inc., manufactures tennis rackets. I was really proud of Otto, he beamed.

He was showing us all the tricks he learned in business school, and if I do say so myself, I think he was doing a rather good job for us. For example, he put together this budget for Racketeer, which makes it very easy to see how much profit well make at any sales volume ( Exhibit 17.8 ).

As best as I can figure it, in March we expected to have a volume of 8,000 units and a profit of $14,500 on our rackets. But we did much better than that! We sold 10,000 rackets, so we should have made almost $21,000 on them. Another one of Ottos innovations is this standard cost system, said Mr. Knapp proudly. He sat down with our production people and came up with a standard production cost per unit (see Exhibit 17.9 ).

He tells me this will let us know how well our production people are performing. Also, he claims it will cut down on our clerical work. Mr. Knapp continued, But one thing puzzles me. My calculations show that we should have earned profit of nearly $21,000 in March. However, our accountants came up with less than $19,000 in the monthly income statement ( Exhibit 17.10 ). This bothers me a great deal. Now, Im sure our accountants are doing their job properly. But still, it appears to me that theyre about $2,200 short. As you can probably guess, Mr. Knapp concluded, we are one big happy family around here. I just wish I knew what those accountants were up to... coming in with a low net income like that.

Requried: Prepare a report for Mr. Elmo Knapp and Mr. Otto Knapp that reconciles the profit graph with the actual results for March (see Exhibit 17.11 ). Show the source of each variance from the original plan (8,000 rackets) in as much detail as you can and evaluate Racketeers performance in March. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

70,000 Sales at $9 60,000 Profit = $ 14,500 50,000 Total costs 40,000 S&A costs = $ 7,500 costs 30,000 Manufacturing costs 20,000 10,000 8,000 2,000 4,000 6,000 Number of Rackets Per Racket Raw material Frame (one frame per racket). . Stringing materials: 20 feet at 3c per foot Direct labor Skilled: 1/8 hour at $9.60 per hour Unskilled: 1/8 hour at $5.60 per hour Plant overhead $3.15 0.60 1.20 0.70 Indirect labor 0.10 Power 0.03 0.12b 0.20b 0.15b Supervision Depreciation Other Total standard cost per frame ... $6.25 Standard costs are calculated for an estimated production volume of 8,000 units each month. Fixed costs RACKETEER, INC. Income Statement For the Month of March-Actual Sales 10,000 rackets at $9.... Standard cost of goods sold 10,000 rackets at $6.25 Gross profit after standard costs Variances $90,000 62,500 $27,500 Materials variance Labor variance Overhead variance (490) (392) (660) Gross profit .. Selling and administrative expenses Operating profit $25,958 7,200 $18,758 Direct materials purchased and used Stringing materials Frames (some frames were ruined during production) Labor 175,000 feet at 2.5 per foot 7,100 at $3.15 per frame Skilled ($9.80 per hour) Unskilled ($5.80 per hour) 900 hours 840 hours Overhead Indirect labor Power S 800 250 Depreciation Supervision Other $1,600 960 $1,250 7,000 rackets Production 17.11). Show the source of each variance from the original plan (8,000 rackets) in as much detail as you can and evaluate Racketeer's performance in March. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.) Complete this question by entering your answers in the tabs below. Materials and Labor Variances Master Budget Comparison Fixed Overhead Profit Variable Variances Reconciliation Overhead Compute the material price variance and labor efficiency variance. Efficiency Variance Price Variance String Frames Skilled Labor Unskilled Labor Master Budget Comparison > Variable Overhead Requried: Prepare a report for Mr. Elmo Knapp and Mr. Otto Knapp that reconciles the profit graph with the actual results for March (see Exhibit 17.11). Show the source of each variance from the original plan (8,000 rackets) in as much detail as you can and evaluate Racketeer's performance in March. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.) Complete this question by entering your answers in the tabs below. Materials and Master Budget Comparison Profit Variable Fixed Labor Variances Reconciliation Overhead Overhead Variances Compute fixed overhead variances. Production Volume Price Variance Variance Fixed Overhead Variable Overhead Fixed Overhead