Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 39

Solve for Master Budget Given Actual Results

A new accounting intern at Gibson Corporation lost the only copy of this period’s master budget. The CFO wants to evaluate performance for this period but needs the master budget to do so. Actual results for the period follow:

Sales volume	120,000	units
Sales revenue	$672,000
Variable costs
Manufacturing	147,200
Marketing and administrative	61,400
Contribution margin	$463,400
Fixed costs
Manufacturing	205,000
Marketing and administrative	113,200
Operating profit	$145,200

The company planned to produce and sell 108,000 units for $5 each. At that volume, the contribution margin would have been $380,000. Variable marketing and administrative costs are budgeted at 10 percent of sales revenue. Manufacturing fixed costs are estimated at $2 per unit at the normal volume of 108,000 units. Management notes, "We budget an operating profit of $1 per unit at the normal volume."

Required

a. Construct the master budget for the period.

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b. Prepare a profit variance analysis like the one in Exhibit 16.5.

Step 1 of 3

a)

Master budget - Master budget is a summary result of all the functional budgets. It means it is a summary statement of all the budgets, which helps to take decision in the top level management position.

Prepare the master budget as follows: