Project 1 :
Following is a monthly given income statement for Raffel jeans, a small newly started fashion jeans manufacturer business. The pro forma analysis was prepared at the beginning of the month and considered three alternative sales levels. The company has no variable marketing costs.
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Income statement line item |
Budgeted amount per unit |
Pre-forma analysis for Alternative output levels |
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10,000 units |
20,000 units |
30,000 units |
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Revenue |
$35 |
$350,000 |
$700,000 |
$1,050,000 |
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Variable costs:
Material
Labor
Overhead
Total
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13
8
5
26 |
130,000
80,000
50,000
260000 |
260,000
160,000
100,000
520,000 |
3,90,000
240,000
150,000
780,000 |
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Contributing margin: |
$10 |
100,000 |
200,000 |
300,000 |
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Fixed costs:
Manufacturing
Overhead
Marketing cost
Total fixed cost
Operating income |
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100,000
50,000
150,000
($50,000) |
100,000
50,000
150,000
$50,000 |
100,000
50,000
150,000
$150,000 |
Since by definition, fixed costs are not expected to change as volume of output changes within the relevant range, fixed costs remain the same at all three projected levels of output. Revenue and variable costs vary with output in a linear fashion. Hence, when output increases 100% from10,000 units to 20,000 units, revenue, each line-item for variable costs, and contribution marginal increase 100%
Raffel jeans management decides that the 16,000 units is most likely output volume, and sets the static budget based on this sale and production level
Using the above given data, prepare and compute in an Excel sheet using different tabs of the sheet for each one of the following calculations;
- Static budget for 10,000 units
- Actual result for 16,000 units
- Operating income
- Static budget variance
- Prepare flexible budget for end on the month
- Variation in operating income
- Actual results
- Flexible budget variance
You must attach the screen shot of the task performed and hand out a print out to the assessor.
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