Question

The following are the actual results for Bentler Associates for the most recent period:

Sales volume 76,560 units
Sales revenue $ 995,280
Variable costs
Manufacturing 250,080
Marketing and administrative 39,300
Contribution margin $ 705,900
Fixed costs
Manufacturing 446,800
Marketing and administrative 104,200
Operating profit $ 154,900


The company planned to produce and sell 87,000 units for $12.50 each. At that volume, the contribution margin would have been $768,000. Variable marketing and administrative costs are budgeted at 5 percent of sales revenue. Manufacturing fixed costs are estimated at $5 per unit at the budgeted volume of 87,000 units. Management notes, “We budget an operating profit of $2.50 per unit at the budgeted volume.”



Required:
b. Prepare a profit variance analysis.

Answer 1

To perform a profit variance analysis, compare the actual results with the planned results. The company had an unfavorable variance for both the contribution margin and operating profit compared to the planned values.

Step-by-step explanation:

To perform a profit variance analysis, we need to compare the actual results with the planned results. Here are the steps:

1. Calculate the planned contribution margin: Planned sales volume (87,000 units) x Planned contribution margin per unit ($768,000) = $66,816,000
2. Calculate the actual contribution margin: Actual sales revenue ($995,280) - Actual variable costs ($289,380) = $705,900
3. Calculate the contribution margin variance: Actual contribution margin ($705,900) - Planned contribution margin ($66,816,000) = -$65,110,100 (Unfavorable variance)
4. Calculate the operating profit variance: Actual operating profit ($154,900) - Planned operating profit ($217,500) = -$62,600 (Unfavorable variance)

The profit variance analysis shows that the company had an unfavorable variance for both the contribution margin and operating profit.