Income Statement Q3 2019 Retail Stores Division

Revenue	Actual Amounts	Budgeted Amounts
Direct re-sale goods	$2,128,553	$2,100,000
Manufactured goods	6,677,321	6,468,000
Total sales	8,805,874	8,568,000
Cost of Goods Sold Manufactured Items
Direct Materials	1,460,100	986,370
Direct Labor	1,580,675	1,290,366
Variable Manufacturing OH	321,633	388,080
Fixed Manufacturing OH	571,447	582,120
Total Cost of Goods Sold Manufactured Items	3,933,855	3,246,936
Cost of Goods Sold Resale Items	1,353,642	1,417,500
Total Cost of Goods Sold	5,287,497	4,664,436
Gross Margin	3,518,377	3,903,564
Variable Selling Costs	567,171	371,700
Fixed Selling and Administrative Costs	538,901	542,500
Operating Income	$2,412,305	$2,989,364

Income Statement Q3 2019 Online Sales Division

Revenue	Actual Amounts	Budgeted Amounts
Direct re-sale goods	$4,012,848	$3,315,000
Manufactured goods	1,279,536	2,079,000
Total sales	5,292,384	5,394,000
Cost of Goods Sold Manufactured Items
Direct Materials	274,350	381,150
Direct Labor	405,850	523,908
Variable Manufacturing OH	114,192	124,740
Fixed Manufacturing OH	285,295	249,480
Total Cost of Goods Sold Manufactured Items	1,079,687	1,279,278
Cost of Goods Sold Resale Items	2,278,058	2,340,000
Total Cost of Goods Sold	3,357,745	3,619,278
Gross Margin	1,934,639	1,774,722
Variable Selling Costs	148,691	114,825
Fixed Selling and Administrative Costs	149,350	157,500
Operating Income	$1,636,598	$1,502,397

Additional Information

Expected (budget) total number of direct re-sale items to be sold	60,000
Actual number of direct re-sale items sold by the Retail Stores Division	19,618
Actual number of direct re-sale items sold by the Online Sales Division	42,464
Expected (budget) total number of manufactured items to be sold	23,100
Actual number of manufactured items sold by the Retail Stores Division	13,745
Actual number of manufactured items sold by the Online Sales Division	4,880
Exp. cost (budget) per sq. ft of direct materials (price/sq. ft of reclaimed wood)	$5.5
Actual cost per sq. ft. of direct materials (cost per sq. ft. of reclaimed wood)	$6.2
Expected (budget) cost per direct labor hour	$13.30
Actual cost per direct labor hour	$12.50
Expected % of direct resale items sold in the Online-Sales Division	65%
Expected % of manufactured items sold in the Retail Stores Division	70%

Required:

Part A: Create a flexible budget for each division (include all income statement items).

Part B: Calculate the following variances for each division and state whether each is favorable or unfavorable: Overall static budget variance, overall flexible budget variance, sales activity variance (one for resale items and one for manufactured items), sales price variance, direct materials price variance, direct materials efficiency variance, direct labor rate variance, direct labor efficiency variance, the direct cost variance for the resale items (this variance is based on the expected versus the actual cost per resale item), variable selling cost variance (this variance is based on the expected versus the actual variable selling cost per item), and the fixed selling and administrative cost variance.

Note: The actual and budgeted amounts per unit are expected to differ for items sold across the two divisions.

Part C: Using the information you have put together so far, what are the items most responsible for the overall difference between the actual and expected income for Q3 operating income for each division? Explain the whys linking the calculations in part B to explain the financial results of both divisions. Utilize additional ratio analysis to support your conclusions if necessary. Provide an overall assessment to the divisions. Explain your answer in no more than 5-6 sentences for each division.

Part D: Use the analysis you have done to evaluate Kimberlys objections to using her divisions operating income variance to evaluate her performance. In doing so list at least two possible reasons in support of her arguments and two possible reasons why her arguments are not supported. Utilize ratio analysis in addition to the variances calculated in part to support your answer.