Name: Vikash Sharma

Enrollment No.: 09BS0002694

Analysis of Variance Between Actual & Budgeted Profits of

Crocker Company for January, 1988
To check the actual performance of the Crocker Company with respect to the budgeted
performance firstly the Performance Report (Table 1) is prepared. This report merely depicts
the actual performance with respect to budgeted in various basic aspects such as sales, cost of
sales, gross profit, expenses, net profit, etc. The performance report clearly shows that the
actual performance is highly unfavorable to that budgeted. It shows that actual sales is $340000
less that what was budgeted, similarly cost of sales, gross profit, R&D expenses, administrative
expenses, net profit also shows unfavorable results of $40000, $300000, $50000, $10000,
$280000 respectively less that what was budgeted.

To see the details of the budget of the company detailed table (Table 2) called Budgeted profit
table is prepared. It clearly shows how the company expects to earn profit. But the actual result
clearly shows that the company made a loss of $70000 instead of a profit of $210000, as was
budgeted.

To see where the company has made a mistake various variance analyses is done which are
explained below.

Revenue Variance:
There are various ways of checking the revenue variance of the company which are discussed
below:

1. Selling Price Variance: (Table 3)

The selling price variance is calculated by multiplying the difference between the actual price
and the standard price by actual volume. Our calculation shows that the price variance is
unfavorable by $90000. Although the price variance if Product F and H were favorable but in
total the variance became unfavorable due to unfavorability of Product E and G. This brings us
to light that the actual price charged for the product were considerably low than what was
budgeted overall.

2. Mix and Volume Variance: (Table 4)

Calculation of mix and volume variance shows it is $100000 unfavorable. Now this calculation
constitutes of the two variance volume and mix. To know the variance that we got in this case is
whether due to volume or mix of the product, we separately calculated the volume variance
and mix variance.
Name: Vikash Sharma
Enrollment No.: 09BS0002694
3. Mix Variance: (Table 5)
The calculation of the mix variance shows that higher proportion of product G and E and lower
proportion of product F and H are sold. Since product G had a higher unit contribution than
other products, the mix variance is favorable by $18000. This also shows that the company had
a ‘richer’ mix i.e., higher proportion of products with higher contribution margin, which has
resulted in favorable mix variance.

4. Volume Variance: (Table 6)

The volume variance calculation clearly shows unfavorability of $118000. This clearly shows a
massive mismatch between the sale volume that was estimated and what was actually
achieved. From the calculations we could see that although the mix variance was favorable by
$18000, but due to massive unfavorability of volume variance, the overall variance became
unfavorable. This can also be seen in the cross check table (Table 7).

Expenses Variance:

Fixed Cost Variance: (Table 8)

Fixed cost shows unfavorable variance of $320000. For calculating the variance it is assumed
that the actual fixed overhead was $640000 in comparison to budgeted $300000. The other
costs in this regard were taken as $650000 and $670000 for actual and budgeted respectively.

Variable cost Variance: (Table 9)

The variable cost variance shows a favorable balance of $230000. The variable cost directly
depicts sales. The favorability in this respect clearly shows the low amount of sales made.

The summary table shows the summarized depiction of the calculations made. It also gives us
vivid picture of the relative importance of each variance as a fraction of the total revenue or
expense item to which it relates.
Name: Vikash Sharma
Enrollment No.: 09BS0002694

Summary Performance Report

Particulars $ ('000)
Actual Profit (70.00)
Budgeted Profit 210.00
Variance (280.00)

Analysis of Variance- Favorable/(Unfavorable)

Revenue Variance:
Price (Table 3) (90.00)
Mix (Table 5) 18.00
Volume (Table 6) (118.00)
Net revenue variance (190.00)

Variable Cost variance (Table 9) 230.00

Fixed Cost variance (Table 8)* (320.00)

Variance (280.00)
*Assuming Actual Fixed Overhead as $640’000

Conclusion:
Actual and budgeted profits of Crocker Company show a considerable difference with actual
being a loss of $70000, whereas budgeted profit was of $210000. The difference mainly
occurred due to unfavorable variance in Sales of $340000. This had the main infl uence in the
loss of the company. If the company could make higher sales or if the sale price could be
increased then it will be able to negotiate the existing variance and make it favorable in the
future. It is for this reason we see unfavorability in selling price variance and volume variance.
The company has maintained a good product mix thus the variance in this case is favorable. The
favorability in variable expense variance is merely the result of unfavorable volume variance. As
variable costs are directly related to the amount of sales, thus low sale has resulted in
favorability in this case.
 Name: Vikash Sharma
Enrollment No.: 09BS0002694

Appendix:
Table 1

Performance Indicator, January 1988 ('000)

Actual Budgeted Actual better/worse than budget

Sales 2160 2500 -340

Cost of Sales 1580 1620 -40
Gross Profit 580 880 -300
Selling Expenses 290 250 40
R&D Expenses 250 300 -50
Administrative Expenses 110 120 -10
Total Expenses 650 670 -20
Net Profit -70 210 -280

Table 2

Budgeted Profits for January, 1988 ('000)

Product E Product F Product G Product H Total('000)
Unit Total Unit Total Unit Total Unit Total
Standard volume ('000) 1000 2000 3000 4000 10000
(S)Sales $0.15 150 $0.20 400 $0.25 750 $0.30 1200 $2,500
Standard variable costs:
(A)Material 0.04 40 0.05 100 0.06 180 0.08 320 $640
(B)Direct Labor 0.02 20 0.02 40 0.03 90 0.04 160 $310
(C)Variable Overhead 0.02 20 0.03 60 0.03 90 0.05 200 $370
(D)Total variable costs(A+B+C) 0.08 80 0.1 200 0.12 360 0.17 680 $1,320

(E)Contribution(S-D) $0.07 70 $0.10 200 $0.13 390 $0.13 520 $1,180

(F)Fixed overhead ($000) 20 60 60 160 $300
(G)Gross Profit(E-F) 50 140 330 360 $880
(H)Selling Expenses $250
(I)R & D Expenses $300
(J)Administrative Expenses $120
(K)Total Expenses (H+I+J) $970
Net profit before taxes(E-K) $210
 Name: Vikash Sharma
Enrollment No.: 09BS0002694
Table 3

Selling Price Variance for January, 1988 ('000)

Product E Product F Product G Product H Total('000)
Unit Total Unit Total Unit Total Unit Total
Actual volume ('000 units) 1000 1000 4000 3000 9000
Actual selling price $0.13 130 $0.22 220 $0.22 880 $0.31 930 $2,160
Budgeted selling price 0.15 150 0.2 200 0.25 1000 0.3 900 $2,250
Price variance -0.02 -20 0.02 20 -0.03 -120 0.01 30 ($90)

Table 4

Sales Mix and Volume Variance for January, 1988 ('000)

1 2 3 4 5 6
Actual Volume Budgeted Volume Difference (2) – (3) Unit Contribution Variance (4) * (5)
Product
E 1000 1000 – – –
F 1000 2000 -1000 0.1 -100
G 4000 3000 1000 0.13 130
H 3000 4000 -1000 0.13 -130
Total 9000 10000 -100

Table 5

Mix Variance for January, 1988 ('000)

1 2 3 4 5 6 7
Product Budgeted Budgeted Mix at Actual Actual Differences(4- Unit Variance
Proportion Volume Sales 3) Contribution (5*6)
E 1/10 900 1000 100 0.07 7
F 2/10 1800 1000 -800 0.1 -80
G 3/10 2700 4000 1300 0.13 169
H 4/10 3600 3000 -600 0.13 -78
Total 9000 9000 $18
 Name: Vikash Sharma
Enrollment No.: 09BS0002694
Table 6

Sales Volume Variance for January, 1988 ('000)

1 2 3 4 5 6
Product Budgeted Mix at Actual Budgeted Differences (2- Unit Volume
Volume Volume 3) Contribution Variance
E 900 1000 -100 0.07 -7
F 1800 2000 -200 0.1 -20
G 2700 3000 -300 0.13 -39
H 3600 4000 -400 0.13 -52
Total 9000 10000 ($118)

Table 7

Cross – Check of Volume Variance for January, 1988 ('000)

1 2 3 4 5
Product Mix and Volume Variance Mix Variance Differences (2) – (3) Volume Variance
E – 7 -7 -7
F -100 -80 -20 -20
G 130 169 -39 -39
H -130 -78 -52 -52
Total ($118) ($118)

Table 8

Fixed Cost Variance, January 1988 ('000)

Actual Budgeted Favorable/Unfavorable
Fixed Overhead 640* 300 -340
Selling Expenses 290 250 -40
R&D expenses 250 300 50
Administrative expenses 110 120 10
Total 650 670 -320
*Assuming actual fixed overhead as $640’000

Table 9

Variable Manufacturing Expenses Variance January 1988 ('000)

Actual Budgeted Favorable/Unfavorable
Material 360 $640 $280
Labor 200 $310 $110
Overhead 530 $370 ($160)
Total 1090 1320 230