[Hint: review exercise 17 available on CCLE for a similar problem to this.] You’re the controller at X Corp. Your accounting staff has just provided you with a list of variance calculations that you requested. Unfortunately, they forgot to calculate some variances that you wanted, and even worse, they neglected to provide you with the original budget data that you also requested. It’s 8 PM, and everyone has gone home already. You have an actual income statement and have scrounged your desk to find some information on standards that the company used in developing the budget. You need to prepare a presentation for tomorrow morning and don’t want to admit that you can’t find your own budget. You resolve to reconstruct it.
Depreciation and supervision are fixed costs; the others are variable. Depreciation was known with certainty at the time of budgeting for all pre-existing PP&E. The company bought a new machine during the year that added an unexpected $4,000 to depreciation. The company’s market share for the year was 1%, but had been budgeted to be 1.2%.
a) Reconstruct the original budgeted income statement.
b) The purpose of tomorrow’s meeting is to discuss your strategy for variance investigation. Your staff is small, and you can only adequately investigate two variances. Which two will you pick, and why? Note that you are in no way constrained by the selection of variances provided above by your staff. You can choose any variance to investigate, after you have calculated it. Please keep your explanations brief.
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