Regarding the variances, what kind of explanations or observation can I make The new incentive compensation plan was adopted Under this plan, each three department heads are rewarded based on the performance of his or her responsibility center Performance is measures against the companys master budget and standard cost system The plan was the result of several meetings with Janet McKinley who is employed by the Quality Products Corporation and Vice President in charge of BTCs division of quality products and her managers The managers argued and bargained for a plan that rewarded the managers fairly for individual contribution and achievements McKinleys plan was intended to promote participation and teamwork and the manages accepted the new preprogram enthusiastically The plan provides for the followings David Hall, the purchasing manager, will receive a bonus equal to 20 of the net materials price if the variance is favorable Rita Smith, the production manager, will receive a bonus equal to 10 of the excess, if any of the actual net revenues (revenues minus both variable and fixed selling expenses) over master budget net revenues Bill Wilford, the production manager, will receive a bonus equal to 3 of the net of several variances the efficiency (usage or quality) variances for materials, labor, and variable overhead the labor rate variance and the variance and fixed overhead spending variances He will receive no bonus if his net variance is unfavorable Statement of Operating Income for the Year Ended June 30, 1998 Actual Master Budget Master Budget Variance F U Flexible Budget Flexible Budget Variance F U Units sold 325,556 280,000 45,556 F 325,556 Retail and catalog in units 174,965 8,573,285 11,662,000 3,088,715 U 8,573,285 Internet 105,429 4,428,018 (4,428,018) F 4,428,018 Wholesale 45,162 1,445,184 1,344,000 (101,184) F 1,445,184 Total units 325,556 Total Revenue 14,446,487 13,006,000 (1,440,487) F 14,446,487 Variable Production Costs Direct Materials Acrylic pile fabric 256,422 233,324 (23,098) U $271,302 (14,880) F 10 mm acrylic eye 125,637 106,400 (19,237) U $123,711 1,926 U 45 mm plastic joints 246,002 196,000 (50,002) U $227,889 18,113 U polyester fiber filling 450,856 365,400 (85,456) U $424,851 26,005 U woven label 16,422 14,000 (2,422) U $16,278 144 U designer box 69,488 67,200 (2,288) U $78,133 (8,645) F accessories 66,013 33,600 (32,413) U $39,067 26,946 U Total Direct Labor Materials 1,230,840 1,015,924 (214,916) U $ 1,181,231 49,609 U Direct labor 3,668,305 2,688,000 (980,305) U 3,125,338 542,967 U variable overhead 1,725,665 1,046,304 (679,361) U 1,216,538 509,127 U Total variable production costs 6,624,810 4,750,228 (1,874,582) U 5,523,091 1,101,719 U Variable Selling expenses 1,859,594 1,218,280 (641,314) 1,416,494 443,100 U Total variable expenses 8,484,404 5,968,508 (7,266,124) U 6,939,585 1,544,819 U Contribution Margin 5,962,083 7,037,492 7,037,492 U 7,506,902 (1,544,819) U Fixed costs manufacturing overhead 658,897 661,920 3,023 F 769,614 (110,717) F selling expenses 5,023,192 4,463,000 (560,192) U 4,463,000 560,192 U administrative expenses 1,123,739 1,124,000 261 F 1,124,000 (261) F total fixed costs 6,805,828 6,248,920 (556,908) U 6,356,614 449,214 U Operating Income (843,745) 788,572 7,594,400 U 1,150,272 (1,994,017) F Price and Efficiency Variance Actual Costs Price Variance Actual input, standard Prices Efficiency Variance Flexible Budget Direct Materials Acrylic pile fabric 256,422 20,428 F $276,850 ($5,548) U $271,302 10 mm acrylic eye 125,637 $125,637 ($1,926) U $123,711 45 mm plastic joints $246,002 25,181 F $271,183 ($43,294) U $227,889 polyester fiber filling 450,856 48,183 F $499,039 ($74,188) U $424,851 woven label 16,422 16,422 ($145) U $16,278 designer box 69,488 6,317 F $75,805 $2,328 F $78,133 accessories 66,013 (26,946) U $41,346 $0 $39,067 Total Direct materials 1,230,840 73,164 F $1,306,283 ($122,772) U $1,181,232 Direct Labor 3,668,305 ($76,329) U $3,591,976 ($466,638) U $3,125,338 Variable Overhead 1,725,665 ($327,488) U $1,398,177 ($181,639) U $1,216,538 Total Variable Cost 6,624,811 (330,654) U 6,296,435 (771,049) U 5,523,107 Sales Units Actual Master Budget Master Budget Variance Flexible Budget (Actual Sales Mix) Flexible Budget Variance (Budget Sales Mix) Sales Mix Variance Sales Volume Variance Unit Sold 325,556 280,000 45,556 325,556 325,556 0 45,556 Retail and Catalog 174,965 8,573,285 11,662,000 3,088,715 8,573,285 13,559,574 4,986,289 1,897,407 Internet 105,429 4,428,018 (4,428,018) 4,428,018 0 4,428,018 0 Wholesale 45,162 1,445,184 1,344,000 (101,184) 1,445,184 1,562,656 117,472 218,669 Total revenue 14,446,487 13,006,000 1,440,487 14,446,487 15,122,230 675,743 2,116,076

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Regarding the variances, what kind of explanations or observation can I make? The new incentive compensation plan was adopted. Under this plan, each three department

Regarding the variances, what kind of explanations or observation can I make?

The new incentive compensation plan was adopted. Under this plan, each three department heads are rewarded based on the performance of his or her responsibility center. Performance is measures against the companys master budget and standard cost system. The plan was the result of several meetings with Janet McKinley who is employed by the Quality Products Corporation and Vice President in charge of BTCs division of quality products and her managers. The managers argued and bargained for a plan that rewarded the managers fairly for individual contribution and achievements. McKinleys plan was intended to promote participation and teamwork and the manages accepted the new preprogram enthusiastically. The plan provides for the followings:

David Hall, the purchasing manager, will receive a bonus equal to 20% of the net materials price if the variance is favorable

Rita Smith, the production manager, will receive a bonus equal to 10% of the excess, if any of the actual net revenues (revenues minus both variable and fixed selling expenses) over master budget net revenues.

Bill Wilford, the production manager, will receive a bonus equal to 3% of the net of several variances: the efficiency (usage or quality) variances for materials, labor, and variable overhead; the labor rate variance; and the variance and fixed overhead spending variances. He will receive no bonus if his net variance is unfavorable.

Statement of Operating Income for the Year Ended June 30, 1998
		Actual	Master Budget	Master Budget Variance	F/ U	Flexible Budget	Flexible Budget Variance	F/ U
Units sold		325,556	280,000	45,556	F	325,556

Retail and catalog in units	174,965	8,573,285	11,662,000	3,088,715	U	8,573,285
Internet	105,429	4,428,018	-	(4,428,018)	F	4,428,018
Wholesale	45,162	1,445,184	1,344,000	(101,184)	F	1,445,184
Total units	325,556
Total Revenue		14,446,487	13,006,000	(1,440,487)	F	14,446,487

Variable Production Costs
Direct Materials
Acrylic pile fabric		256,422	233,324	(23,098)	U	$271,302	(14,880)	F
10-mm acrylic eye		125,637	106,400	(19,237)	U	$123,711	1,926	U
45-mm plastic joints		246,002	196,000	(50,002)	U	$227,889	18,113	U
polyester fiber filling		450,856	365,400	(85,456)	U	$424,851	26,005	U
woven label		16,422	14,000	(2,422)	U	$16,278	144	U
designer box		69,488	67,200	(2,288)	U	$78,133	(8,645)	F
accessories		66,013	33,600	(32,413)	U	$39,067	26,946	U
Total Direct Labor Materials		1,230,840	1,015,924	(214,916)	U	$ 1,181,231	49,609	U

Direct labor		3,668,305	2,688,000	(980,305)	U	3,125,338	542,967	U
variable overhead		1,725,665	1,046,304	(679,361)	U	1,216,538	509,127	U
Total variable production costs		6,624,810	4,750,228	(1,874,582)	U	5,523,091	1,101,719	U

Variable Selling expenses		1,859,594	1,218,280	(641,314)		1,416,494	443,100	U
Total variable expenses		8,484,404	5,968,508	(7,266,124)	U	6,939,585	1,544,819	U

Contribution Margin		5,962,083	7,037,492	7,037,492	U	7,506,902	(1,544,819)	U

Fixed costs
manufacturing overhead		658,897	661,920	3,023	F	769,614	(110,717)	F
selling expenses		5,023,192	4,463,000	(560,192)	U	4,463,000	560,192	U
administrative expenses		1,123,739	1,124,000	261	F	1,124,000	(261)	F
total fixed costs		6,805,828	6,248,920	(556,908)	U	6,356,614	449,214	U

Operating Income		(843,745)	788,572	7,594,400	U	1,150,272	(1,994,017)	F

Price and Efficiency Variance
	Actual Costs	Price Variance		Actual input, standard Prices	Efficiency Variance		Flexible Budget

Direct Materials
Acrylic pile fabric	256,422	20,428	F	$276,850	($5,548)	U	$271,302
10-mm acrylic eye	125,637	-		$125,637	($1,926)	U	$123,711
45-mm plastic joints	$246,002	25,181	F	$271,183	($43,294)	U	$227,889
polyester fiber filling	450,856	48,183	F	$499,039	($74,188)	U	$424,851
woven label	16,422	-		16,422	($145)	U	$16,278
designer box	69,488	6,317	F	$75,805	$2,328	F	$78,133
accessories	66,013	(26,946)	U	$41,346	$0		$39,067
Total Direct materials	1,230,840	73,164	F	$1,306,283	($122,772)	U	$1,181,232

Direct Labor	3,668,305	($76,329)	U	$3,591,976	($466,638)	U	$3,125,338
Variable Overhead	1,725,665	($327,488)	U	$1,398,177	($181,639)	U	$1,216,538
Total Variable Cost	6,624,811	(330,654)	U	6,296,435	(771,049)	U	5,523,107

Sales
	Units	Actual	Master Budget	Master Budget Variance	Flexible Budget (Actual Sales Mix)	Flexible Budget Variance (Budget Sales Mix)	Sales Mix Variance	Sales Volume Variance
Unit Sold		325,556	280,000	45,556	325,556	325,556	0	45,556
Retail and Catalog	174,965	8,573,285	11,662,000	3,088,715	8,573,285	13,559,574	-4,986,289	1,897,407
Internet	105,429	4,428,018	-	(4,428,018)	4,428,018	0	4,428,018	0
Wholesale	45,162	1,445,184	1,344,000	(101,184)	1,445,184	1,562,656	-117,472	218,669
Total revenue		14,446,487	13,006,000	-1,440,487	14,446,487	15,122,230	-675,743	2,116,076