IS THIS ANSWER CORRECT? (at bottom of page)

This companys relevant range of production is between 600,000 and 800,000 bottles a year. Within the relevant range, variable costs per bottle and total annual fixed costs remain constant. The company has the following data from its standard cost system.

Standard Costs
Variable costs per bottle:
Direct materials (5 gallons at $1.40 per gal)	$7.00
Direct labor (0.04 direct labor hour at $16.50 per hour)	$0.66
Variable mfg. overhead (0.04 direct labor hour at $19 per hour)	$0.76
Selling and administrative expenses	$1.90
Fixed costs per year:
Mfg. overhead	$934,400
Selling and administrative expenses	$680,000

The planning budget income statement is based on the expectation of selling 730,000 bottles . The budgeted selling price is $14.50 per bottle.

For planning and control purposes, the company relies on its standard costs to derive their budgeted costs per bottle. For example, the cost of direct materials reported on the planning budget income statement is calculated as $7.00 per bottle time 730,000 bottle, which is $5,110,000. Also, the denominator level of activity is calculated as 0.04 direct labor hour per bottle times 730,000 bottles, which is 29,200 direct labor hours.

The company actually produced and sold 760,000 bottles at $15 per bottle this year. The company does not have a beginning or ending raw materials inventory, because it uses all raw materials purchased. Also, the company does not have a beginning or ending finished goods inventory. Everything produced in the year is sold in that same year.

The actual income statement for the year is provided below.

BOTTLE INC.
Actual Income Statement
Sales (760,000 bottles produced and sold at $15 per bottle)	$11,400,000
Less Variable Costs:
Direct materials (3,952,000 gal at $1.25 per gal)	4,940,000
Direct labor (38,000 direct labor hours at $18 per hour)	684,000
Variable manufacturing overhead	760,000
Variable selling and administrative costs	1,748,000
Contribution margin	3,268,000
Less Fixed Costs:
Fixed manufacturing overhead costs	1,020,000
Fixed selling and administrative costs	750,000
Net operating income	$1,498,000

Required:

1. Prepare a detailed income statement variance analysis using the contribution approach income statement for the year (i.e., compare the actual income statement with the flexible budget income statement and compare the flexible budget income statement with the planning budget income statement). Show all the revenue, spending, and activity variances appearing in the income statement analysis. All variances should be marked with either an F for favorable or U for unfavorable. (30 points)

IS THIS ANSWER CORRECT?

ANSWER: Bottle Inc. Income Statement Variance Analysis

Actual Revenue & Spending Flexible Activity Results Variances Budget Variances $11,400,000 $380,000 F $11,020,000 $435,000 F Planning Budget $10,585,000 Sales Less V.C. DM DL V-MOH V-S&A CM Less FC F-MOH F-S&A NOI $4,940,000 $684,000 $760,000 $1,748,000 $3,268,000 DAN -$380,000 $189,000 $182,400 $304,000 $84,600 U U U F $5,320,000 $495,000 $577,600 $1,444,000 $3,183,400 $210,000 $13,200 $22,800 $57,000 $132,000 U U U U F $5,110,000 $481,800 $554,800 $1,387,000 $3,051,400 $1,020,000 $750,000 $1,498,000 $85,600 $70,000 -$71,000 U $934,400 U $680,000 U' $1.569,000 $ $0 $0 $132,000 $934,400 $680,000 $1,437,000 F Actual Revenue & Spending Flexible Activity Results Variances Budget Variances $11,400,000 $380,000 F $11,020,000 $435,000 F Planning Budget $10,585,000 Sales Less V.C. DM DL V-MOH V-S&A CM Less FC F-MOH F-S&A NOI $4,940,000 $684,000 $760,000 $1,748,000 $3,268,000 DAN -$380,000 $189,000 $182,400 $304,000 $84,600 U U U F $5,320,000 $495,000 $577,600 $1,444,000 $3,183,400 $210,000 $13,200 $22,800 $57,000 $132,000 U U U U F $5,110,000 $481,800 $554,800 $1,387,000 $3,051,400 $1,020,000 $750,000 $1,498,000 $85,600 $70,000 -$71,000 U $934,400 U $680,000 U' $1.569,000 $ $0 $0 $132,000 $934,400 $680,000 $1,437,000 F