Vermonts Best Maple Syrup Inc. is a small business selling a single product, pure Vermont maple syrup, since 1939. Their best-seller is the one-pint jug. The companys relevant range of production is between 600,000 and 800,000 jugs a year. Within the relevant range, variable costs per jug and total annual fixed costs remain constant. The company has the following data from its standard cost system. Standard Costs Variable costs per jug: Direct materials (5 gallons at $1.20 per gallon of maple tree sap) $6.00 Direct labor (0.04 direct labor hour at $16 per hour) $0.64 Variable mfg. overhead (0.04 direct labor hour at $21 per hour) $0.84 Selling and administrative expenses $2.00 Fixed costs per year: Mfg. overhead $921,600 Selling and administrative expenses $650,000 The planning budget income statement is based on the expectation of selling 640,000 jugs of maple syrup. The budgeted selling price is $15 per jug. For planning and control purposes, the company relies on its standard costs to derive their budgeted costs per jug of maple syrup. For example, the cost of direct materials reported on the planning budget income statement is calculated as $6.00 per jug times 640,000 jugs, which is $3,840,000. Also, the denominator level of activity is calculated as 0.04 direct labor hour per jug times 640,000 jugs, which is 25,600 direct labor hours. The company actually produced and sold 680,000 jugs at $15.25 per jug 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. 1 2 The actual income statement for the year is provided below. Vermonts Best Maple Syrup Inc. Actual Income Statement Sales (680,000 jugs produced and sold at $15.25 per jug) $10,370,000 Less Variable Costs: Direct materials (3,128,000 gallons at $1.30 per gallon) 4,066,400 Direct labor (36,000 direct labor hours at $16 per hour) 561,000 Variable manufacturing overhead 697,000 Variable selling and administrative costs 1,224,000 Contribution margin 3,821,600 Less Fixed Costs: Fixed manufacturing overhead costs 998,000 Fixed selling and administrative costs 750,000 Net operating income $2,073,600

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. A template for answering this question is given below. All variances should be marked with either an F for favorable or U for unfavorable. Vermonts Best Maple Syrup Inc. Income Statement Variance Analysis Sales Less V.C. Revenue & Actual Spending Results Variances $$$ $$$ Flexible Budget $$$ Activity Variances $$$ Planning Budget $$$ 3 DM $$$ DL $$$ V-MOH $$$ V-S&A $$$ CM $$$ Less FC F-MOH $$$ F-S&A $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ NOI $$$ $$$ $$$ $$$ $$$

2. Suppose your boss Mr. Coolidge is in the process of evaluating how well the company performed in terms of generating revenues and controlling costs. Mr. Coolidge would like to compare the actual income statement with the planning budget income statement. Could you use the variance analysis from Part 1 to persuade him, who is kind of stubborn, that the company should compare the actual income statement with the flexible budget income statement instead?

3. Prepare a very detailed manufacturing cost variance analysis (e.g., calculate the material price variance and quantity variance; the labor rate variance and efficiency variance; the variable overhead rate variance and efficiency variance; and the fixed manufacturing overhead budget variance and volume variance). All variances should be marked with either an F for favorable or U for unfavorable. Show your calculations.

4. Could you reconcile the spending variances in Part 1 with manufacturing cost variances in Part 3? For example, how is the amount of spending variance for direct labor in Part 1 explained by the amounts of the two direct labor variances in Part 3

5. Could you help Mr. Coolidge evaluate the companys performance in controlling direct labor costs by interpreting relevant variances from Part 1 and Part 3?